BIR Ruling [DA-657-06]

November 7, 2006 BIR RULING [DA-657-06] DA-107-2000; Sec. 188 & 196 NIRC Prestige Equities, Inc . 10 Quezon Avenue Quezon City Attention: William Tan President Gentlemen : This refers to your letter dated September 1, 2006, requesting this Office's opinion concerning the documentary stamp tax (DST) consequences on the acquisition of Heritage Park Investment Certificates (HPIC), either through a Deed of Assignment, Sale or Transfer. It is represented that Prestige Equities, Inc. ("Prestige", for brevity) is a corporation duly organized and existing under the laws of the Republic of the Philippines and that it intends to acquire HPIC from an existing holder either thru a Deed of Assignment, Sale or Transfer, the terms of which are the following: 1. Installment, payable in ten years 2. 10% down payment upon execution of a Contract to Sell 3. Deed of Absolute Sale to be executed upon full payment of the contract price It is further represented that the nature and details of the HPIC are: 1. It is issued by the Bases Conversion and Development Authority (BCDA) pursuant to the terms of the Pool Formation Trust Agreement among BCDA, as issuer, the Public Estate Authority (PEA), as project manager and the Philippine National Bank (PNB) as Trustee. 2. It is an instrument which simply represents the right of the holder to the perpetual use of a specific memorial lot in the Heritage Park identified and described thereon, and to the ownership of the improvements and enjoyment of the common amenities, facilities, services and perpetual care of the Heritage Park. There is no transfer of ownership of said lot as title remains with BCDA. 3. The certificate (HPIC) is issued in registered form and title to it is transferable upon surrender and endorsement of the same to the transfer agent. HICSaD Prestige now requests confirmation of its opinion that since the HPIC is neither a debt or equity instrument, and that it only represents the right of the holder to perpetual use of a memorial lot and to improvements on the lot as well as the enjoyment of the common amenities and facilities, the assignment, sale or transfer of the HPIC by the holder to Prestige should be considered as merely an assignment of rights to a real property subject to the P15.00 documentary stamp tax on the notarial acknowledgement of the Deed of Assignment/Sale/Transfer pursuant to Section 188 of the Tax Code. In reply, please be informed that Section 196 of the Tax Code provides that DST shall be imposed on all conveyances, deeds, instruments, or writings other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement, or realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser or purchasers, or to any other person or persons designated by such purchaser or purchasers. The DST will be computed at the rate of P15.00 for every P1,000.00 based on the consideration contracted to be paid to such realty, or its fair market value determined in accordance with Section 6(E) of the Tax Code, whichever is higher. When one of the contracting parties is the Government, the tax therein imposed shall be based on the actual consideration. In the instant case, however, the proposed transfer by the holder of the HPIC to Prestige is not a sale of land, tenement or other realty within the contemplation of Section 196 of the Tax Code, but is only a sale of the right of the holder to the perpetual use of a specific memorial lot as stated above. This finds support under Department of Finance-Bureau of Local Government Finance Opinion dated December 17, 2002, where it was held that the BCDA remains the owner of the memorial lots in Heritage Park despite the sale of HPIC's covering said lots to other parties. Furthermore, Section 180 of Revenue Regulations (RR) No. 26 provides that: "Section 180 Deeds to Burial Sites Deeds to burial sites which do not convey title to land, but only a right to sepulture, to erect monuments, etc. are not subject to stamp tax." It is evident that the HPIC being acquired in this case only gives a right to Prestige to use a specific memorial lot in Heritage Park, as well as the ownership of the improvements and enjoyment of the common amenities, facilities, services and perpetual care of the Heritage Park. It does not operate to vest title over said lot to Prestige as ownership of the same remains with the BCDA, as already discussed. Thus, it is clearly within the coverage of Section 180 of RR 26 and accordingly, not subject to DST under Section 196 of the same Tax Code. The Deed of Assignment, Sale or Transfer between Prestige and the holder, however, is subject to a documentary stamp tax of P15.00 on the notarial acknowledgement on said Deed in accordance with Section 188 of the same Code. (BIR Ruling No. DA 107-2000, dated February 18, 2000) 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