BIR Ruling [DA-637-04]

December 15, 2004 BIR RULING [DA-637-04] Secs. 27; 196; 147-92; 080-02 Sunico Malabanan & Associates 2nd Floor, ODC International Plaza 219 Salcedo Street, Legaspi Village Makati City Attention: Atty. Melquiades T. Malabanan Gentlemen : This refers to your letter dated September 20, 2004 requesting, in behalf of your clients, Douglas, Sheila, Alan, Christopher, Jonathan and Arthur Mathias, all surnamed de Luzuriaga, for a confirmation of your opinion that the transfer of the real properties under Trust Account No. 11430144 by the Trustee-Transferor, Bank of the Philippine Islands (successor in interest of Far East Bank and Trust Co.) to the abovenamed Beneficiaries-Transferees, with the consent of the Trustors, Spouses Franklin R. de Luzuriaga and Lucina D. de Luzuriaga, and without any monetary consideration, is not subject to capital gains and documentary stamp taxes. It is represented that on December 17, 1984, Spouses Franklin R. de Luzuriaga and Lucina D. de Luzuriaga (the Trustors) created a trust account with the Far East Bank and Trust Co. (FEBTC) [now Bank of the Philippine Islands (BPI)], designated as FEBTC Trust Account No. 4123-00169-6, covering two (2) parcels of land located at Antipolo City and Taytay, Rizal (the "Trust Properties"), for the benefit of their children, Douglas, Sheila, Alan, Christopher, Jonathan and Arthur Mathias; that a Deed of Trust was executed on the same date for the said transaction; that simultaneous with the above transaction, the Trustors executed a Deed of Donation of the Trust Properties in favor of their children, the named beneficiaries, through the FEBTC Trust Account; that the Trustee accepted the donation for and in behalf of the de Luzuriaga siblings; that the corresponding donor's tax due on the above donation was paid on May 9, 1986; that consequently, the titles of the Trusted Properties were transferred to FEBTC as trustee for the de Luzuriaga siblings; that on September 14, 2000, the de Luzuriaga siblings, with the consent of their parents, decided to terminate the above-mentioned Trust Account, and instructed the Trustee, now BPI, to release the Trust Properties to them; that on even date, BPI conveyed without any monetary consideration, unto and in favor of the de Luzuriaga siblings, the Trust Properties through the execution of a Deed of Transfer; and that in support of your request you submitted the following documents: aEIADT 1. Deed of Transfer dated September 14, 2000 executed by and between BPI and the de Luzuriaga siblings; 2. Deed of Trust dated December 17, 1984 executed by and between Spouses Franklin and Lucina de Luzuriaga and FEBTC; and 3. Two (2) separate Deeds of Donation executed by Franklin and Lucina de Luzuriaga. In reply thereto, please be informed that under Section 27 (D) (5) of the Tax Code of 1997, as amended, capital gains presumed to have been realized from the sale, exchange, or other disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. In the instant case, however, there is no sale, exchange or disposition of real property involved. The transfer of the titles of the Trust Properties in favor of the de Luzuriaga siblings, the beneficiaries of the trust created by and between Spouses Franklin and Lucina Luzuriaga and FEBTC (now BPI), is merely a formality of transferring to them the beneficial ownership of the said properties, in order that titles of the same may be registered in their name as the rightful owners thereof (BIR Ruling No. 147-92 dated May 8, 1992). Accordingly, the transfer of titles over the Trust Properties from BPI, the trustee, to the de Luzuriaga siblings, the real owners thereof, without any monetary consideration under and by virtue of the Deed of Transfer, is not subject to the capital gains tax nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, as amended. Moreover, under Section 191 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations", conveyances to a trust without valuable consideration, or from a trustee to a cestui que trust without valuable consideration are not subject to tax. From the foregoing and since the transfer of the above-mentioned real properties by BPI to the de Luzuriaga siblings, is in connection and in recognition of an existing trust, the said transfer, therefore, is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgement to the said Deed of Transfer is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the same Code. (BIR Ruling No. 080-02 dated April 29, 2002). HaSEcA 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group