BIR Ruling [DA-612-06]

October 12, 2006 BIR RULING [DA-612-06] Sec. 27; DA-325-04 Mr. Pepito M. Samson 306 Shoe Avenue Sto. Nio, Marikina City S i r : This refers to your letter dated September 18, 2006 stating that in November 1987, you purchased a parcel of land from Paz Sumulong Tanjuatco, using your personal funds; that you placed the title of the said realty in the name of Rempson Realty & Development Corporation ("Rempson"), subject to the understanding that Rempson shall only hold the legal title to the property and that the equitable title will remain with you; that Rempson is a close family corporation whose directors constitute your brothers and sisters, thus, no one objected to the above action you have taken; that on October 3, 1996, you sold the subject property, through Rempson, in favor of Green Arrow Development Corporation; that the 5% expanded withholding tax (EWT) and documentary stamp tax (DST) based on the gross selling price were paid; and that Rempson never included the subject property in its inventory, hence, it did not avail of the above EWT paid. Based on the foregoing, you are requesting in effect for a confirmation of your opinion that an implied trust was created when you placed in the name of Rempson the property you bought from Paz Sumulong Tanjuatco in accordance with Article 1448 of the Civil Code of the Philippines and that Rempson is not subject to the corporate income tax on the gain derived from the above sale transaction. In reply, please be informed that Article 1448 of the Civil Code of the Philippines provides as follows: "ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. . . . ." Considering that in the instant case, it was you who purchased the subject parcel of land from Paz Sumulong Tanjuatco, through Rempson, using your personal funds and with the understanding that Rempson only holds the legal title to the property and the equitable title thereto remains with you, an implied trust under Art. 1448 of the Civil Code of the Philippines, therefore, was created. As a consequence, the taxes imposed on the subsequent disposition of the subject property by you, as the beneficiary/real owner thereof, through Rempson, shall be for your account. The EWT paid on the said sale transaction, therefore, will not be credited to Rempson. On the other hand, since Rempson is only acting as a trustee, it is, therefore, not subject to the corporate income tax imposed under Section 27 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-325-2004 dated June 16, 2004) aSACED 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service