BIR Ruling [DA-636-99]

November 12, 1999 BIR RULING [DA-636-99] Eternal Plans, Inc. Dominga Building III 2113 Pasong Tamo corner Dela Rosa Streets Makati City Attention: Atty . Jim Francisco L. Asuncion Legal Counsel Gentlemen : This refers to your letter dated March 16, 1999 stating that Eternal Plans, Inc. (EPI), a Makati based pre-need company, owns three (3) parcels of land located in Makati City covered by Transfer Certificates of Title (TCT) Nos. 205176 and 205053, and one in Quezon City covered by TCT No. 126771; that Eternal Life Plan, Inc. has title over a real property in its name which is situated in Quezon City and covered by TCT No. 92206; that EPI, Eternal Life Plan, Inc. and another sister company, Eternal Education Plan, Inc. have since been merged with EPI as the surviving corporation; that EPI incurred a deficiency in its Trust Fund requirement with the Securities and Exchange Commission (SEC); that in lieu of cash, the SEC required EPI to assign the aforementioned real properties to its trustee bank, Bank of the Philippine Islands (BPI) to cover said cash deficiency in the Trust Fund; and that the assignment of the properties by EPI to BPI is without consideration inasmuch as said transaction is only in compliance with the order of the SEC. Based on the foregoing, you now in effect request for a ruling on the tax consequence of the assignment of real properties by EPI to BPI in lieu of the cash requirement for the Trust Fund. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets including pacto de retro sales and other forms of conditional sales by individuals including estates and trusts. Under the foregoing provision, the assignment by EPI to BPI is not embraced within the context of the said provision considering that the assignment is in compliance with the order of SEC and without monetary consideration. In essence, the legal title of the property still rest with EPI. BPI as trustee is merely the keeper or the manager of the property assigned. For the same reason, the said transaction is not likewise subject to the creditable withholding prescribed under Section 2.57.2(J) of Revenue Regulations 2-98, implementing Section 57(B) of the Tax Code of 1997 (BIR Ruling No. 115-97 dated March 19, 1997) Likewise, the assignment is not also subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since the same was executed without any valuable consideration. Section 185 of Revenue Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations" provides that conveyance without valuable consideration is not taxable. However, the acknowledgment on the Deed of Assignment is subject to documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. cdlex 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)