BIR Ruling [DA-646-04]

December 21, 2004 BIR RULING [DA-646-04] 27 (D) (E), 196; 98; 105 DA-136-2000 LBC Properties, Inc. General Aviation Area Domestic Airport Compound Pasay City Attention: Atty. Juan Victor R. Llamas Corporate Secretary Gentlemen : This refers to your letter dated December 10, 2004 requesting for confirmation of your opinions that the transfer of the parcels of land, including existing improvements thereon from LBC Properties, Inc. to LBC Development Bank is not subject to capital gains tax, creditable withholding tax, documentary stamp tax, donor's tax and value-added tax. It is represented that LBC Development Bank requested LBC Properties, Inc. to acquire on its behalf from Metropolitan Bank and Trust Company, Inc., the three (3) parcels of real properties with improvements thereon situated at the corners of J.P. Rizal, F. Zobel and Zenaida Sts., Makati City, which are more particularly described in Transfer Certificates of Title (TCTs) Nos. 220360, 220361 and 220362 of the Registry of Deeds for Makati City. In accordance with the nominee/trust arrangement between LBC Development Bank and LBC Properties, Inc., the latter bought the aforementioned properties from Metropolitan Bank and Trust Company, Inc. The funds used by LBC Properties, Inc. to purchase the above-quoted properties were provided by LBC Development Bank. In order to convey to LBC Development Bank as the beneficial owner of the said real properties, LBC Properties, Inc. executed a Deed of Conveyance in favor of LBC Development Bank. In relation to the foregoing facts, you have submitted the following documents to support the transaction: 1. Secretary's Certificate of LBC Development Bank stating therein the resolution of its Board of Directors approved during its meeting on October 20, 2004 authorizing the Corporation (a) to acquire by purchase from Metropolitan Bank and Trust Company, Inc. the above-mentioned three (3) parcels of land with all the existing improvements thereon through LBC Properties, Inc. as its nominee/trustee, and (b) to provide LBC Properties, Inc. with the funds necessary for the acquisition of the aforesaid three (3) parcels of land and for all expenses required for the transfer of ownership to, and registration of the titles of the three (3) parcels of real properties in the name of the Corporation certified under oath by Jennifer D. Fajelagutan its Corporate Secretary; 2. Secretary's Certificate of LBC Properties, Inc. stating therein the resolution of its Board of Directors approved on October 20, 2004 authorizing the Corporation to purchase and acquire all the rights to, title and interest of Metropolitan Bank and Trust Company, Inc. over the three (3) parcels of real properties as nominee/trustee of LBC Development Bank, certified under oath by Atty. Juan Victor R. Llamas its Corporate Secretary. Based on the foregoing, you now request for a confirmation of your opinions that: 1. The conveyance by LBC Properties, Inc. of the foregoing properties to LBC Development Bank under the Deed of Conveyance which is without consideration because the latter is the real owner of the said three (3) parcels of land is exempt from capital gains tax provided under Section 27(D)(5) of the Tax Code of 1997 and creditable withholding tax under Revenue Regulations (RR) No. 2-98, as amended. 2. The Deed of Conveyance executed by LBC Properties, Inc. in favor of LBC Development Bank conveying the three (3) parcels of land is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, it is subject to the documentary stamp tax of PhP15.00 imposed on the notarial acknowledgment provided under Section 188 of the same Code. 3. The conveyance of the three (3) parcels of land is exempt from donor's tax imposed under Section 98 of the Tax Reform Act of 1997 due to lack of donative intent on the part of LBC Properties, Inc. 4. The conveyance of the three (3) parcels of land with the improvements existing thereon is not subject to value-added tax (VAT) under Section 105 of the Tax Code of 1997. In reply, please be informed that: 1. The conveyance of the three (3) parcels of land including the improvements existing thereon by LBC Properties, Inc. to LBC Development Bank, which is the real owner thereof, is exempt from capital gains tax under Section 27(D)(5) of the Tax Code of 1997. This Office ruled in BIR Ruling No. 116-91 dated June 21, 1991, that where the Deed of Transfer of Real Property (whether classified as ordinary or capital asset) was executed by the trustee in favor of the real owner of the subject properties, no corporate income tax accrued and became collectible. Similarly, the conveyance by LBC Properties, Inc. of the three (3) parcels of land with improvements thereon to LBC Development Bank under a Deed of Conveyance that is without consideration is exempt from the 6% capital gains tax imposed by Section 27(D)(5) of the 1997 Tax Code. Likewise, the aforesaid transfer is not subject to creditable withholding tax prescribed by RR 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997. 2. The conveyance of realty not in connection with a sale to trustees or other persons without consideration is not taxable under Section 185 of the Revised Documentary Stamp Tax Regulations. Accordingly, the Deed of Conveyance without consideration executed between LBC Properties, Inc. and LBC Development Bank, transferring in favor of the latter as the real owner of the aforestated properties is not subject to the documentary stamp tax on conveyance of real property under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgement to said Deed of Conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code. 3. The transfer of real properties, including the improvements existing thereon is exempt from donor's tax under Section 98 of the Tax Code of 1997. There being no donative intent on the part of the trustee, LBC Properties, Inc., in the conveyance of the properties, there can be no donor's tax imposed under Section 98 of the 1997 Tax Code. 4. The transfer is likewise not subject to VAT, since under Section 105 of the Tax Code of 1997, any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services and any person who imports goods shall be subject to VAT imposed in Sections 106 to 108 of the same Tax Code. Hence, by transferring said realties LBC Properties, Inc., neither sells, barters, exchanges goods or properties nor renders services to be subject to VAT. IECAaD Accordingly, this serves as the basis for and authority of the Revenue District Officer (RDO) that has jurisdiction over the said properties to issue the Certificate Authorizing Registration (CAR) in favor of LBC Development Bank, the real and beneficial owner of the three (3) parcels of real properties with improvements thereon situated at the corners of J. P. Rizal, F. Zobel and Zenaida Sts., Makati City. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service