BIR Ruling [DA-588-99]

October 7, 1999 BIR RULING [DA-588-99] Filinvest Land, Inc. 173 P. Gomez St. San Juan, Metro Manila Attention: Mr . Efren M . Reyes Senior Vice-President and Chief Financial Officer Gentlemen : This refers to your letter dated August 31, 1998 requesting for a confirmation of your opinion that the conveyance of the common areas and road lots in Northview 1 and Northview 1A Subdivisions in Quezon City is exempt from the payment of income tax, donor's tax and documentary stamp tax. It appears that Filinvest Land, Inc., (FLI) is a domestic corporation engaged in the business of real estate development; that it is the developer of the Northview 1 and Northview 1A Subdivisions in Quezon City; that Northview 1 Subdivision has open spaces, parks, playground and road lots with a total area 59,462 sq.m.; that Northview 1A Subdivision has an open space and several road lots with a total area of 18,128 sq.m.; that the buyers-homeowners in Northview 1 and Northview 1A Subdivisions have formed a community association for the purpose of holding ownership of the common areas and road lots in the said subdivision projects; that the homeowners association for both subdivisions is registered with the Home Insurance and Guaranty Corporation (HIGC); that in the Deed of Sale and Deed of Restrictions executed between FLI and its buyers, it is stipulated that the buyer shall be a member of the homeowners association; that in the Deed of Restrictions the homeowners association shall succeed FLI in the management and maintenance of the basic facilities, streets, lanes or open spaces; that FLI and the homeowners association for Northview 1 and Northview 1A Subdivisions will execute a Deed of Conveyance for the turnover of the open spaces, parks, playground and road lots; and that FLI will convey all the pertinent titles to the association, free from all liens and encumbrances and without any monetary consideration pursuant to the requirements provided for in the Deed of Sale and Deed of Restrictions. LibLex In reply, please be informed that the transfer of the common areas and road lots by FLI to the homeowners association is not subject to capital gains tax and creditable withholding tax, since the conveyance of the said facilities is not for a monetary consideration. Likewise, the Deed of Conveyance is exempted from the payment of documentary stamp tax imposed by Section 196 of the Tax Code of 1997, since under Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26), " conveyances of realty not in connection with a sale , to trustees or other persons without consideration are not taxable " but the notarial acknowledgment is subject to the documentary stamp tax of P15.00 imposed under Sec. 188 of the Tax Code of 1997. Furthermore, the absence of donative intent shall likewise render the transfer not subject to donor's tax imposed under Section 99 of the Tax Code of 1997. It has been held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated for it to be subject to donor's tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)