BIR Ruling [DA-662-99]

November 29, 1999 BIR RULING [DA-662-99] Picazo Buyco Tan Fider & Santos 8th Floor Singapore Airlines Building 138 H.V. dela Costa Street Salcedo Village, Makati City Attention: Atty . Gemma M. Santos Gentlemen : This refers to your letter dated May 3, 1999, requesting in effect, for confirmation of your opinion that the conveyance of condominium and parking units by the United Coconut Planters Bank Trust Banking Division ("Trustee") to the individual trustors, and the transfer and conveyance of the common areas and facilities of the Parque Espaa Condominium Project by the same Trustee in favor of the Condominium Corporation for the said Project, are not subject to the 6% capital gains tax under Section 24(D)(1) of the Tax Code of 1997 and the documentary stamp tax on deeds of sale and conveyance of real property imposed by Section 196 of the same Code. It is represented that Comunidades Developers, Inc. ("CDI") has introduced in the Philippines an innovative approach to commercial, office and residential condominium ownership adapted from the Spanish Model practiced for the past twenty-five (25) years and known as the Regimen de Comunidad de Proprietario ("Private Ownership Community") but modified to take into account the relevant laws, regulations and practices in the Philippines; that under such scheme, CDI acts as project proponent/organizer and as such identifies a parcel of land on which the project shall be established and finds investors who shall themselves undertake and participate in the collective development of the same project and who shall eventually be the owners of the individual units which comprise the same (the "Investors"); that CDI had identified a parcel of land, known as Lot 4, Block 13, Phase 1 of the Filinvest Corporate City in Alabang and presently covered by Transfer Certificate of Title No. 211357 of the Registry of Deeds for Makati (the "Subject Land") which shall be developed into a residential condominium project to be known as the "Parque Espaa Project (the "Project"); that each Investor entered into a Memorandum of Agreement with CDI (the "MOA") where each Investor undertook to collectively develop the Project and to put up his/her respective capital contributions for the same and in return for such participation and as part of his/her interest in the Project, cash Investor was assigned specific condominium units and parking units in the Project (the "Condominium Units" and "Parking Units"). In addition, the Investor was to have a proportionate undivided interest in the common areas of the Project, which common areas includes the Subject Land (the "Common Areas"); for its part, CDI was given a mandate to manage and administer the development of the project and in connection thereto, to execute acts on behalf of and for the collective benefit of the Investors. CDI, however, did not and does not assume the role of developer and hence has not made any representation that it is, in its own capacity, selling the units comprising the project; that under the terms of the MOA, each Investor agreed that prior to the actual division of the Project into individual units, their respective interest in the Project would consist in a pro-indiviso, pro-rata share, held collectively with the other Investors. Realizing, however, that it would be cumbersome and administratively difficult for all the Investors to be named as owners of the Subject Land and the Project, various trust agreements were executed by the Investors, as Trustors, and the Trustee for the purpose of allowing the Trustee to hold title to the Subject Land and the Project; that at the same time that the Trustors executed the Trust Agreements, their respective initial capital contributions were remitted to the Trustee with the instructions for the Trustee to purchase the Subject Land for the collective benefit of the Investors and in proportion to their respective interests in the Project. Moreover, the Trustee was instructed to hold and disburse the funds as and when necessary for the development of the Project using the Investors' additional capital contributions; that in accordance with such direction, the Trustee then purchased the Subject Land and registered the same in its own name under Transfer Certificate of Title (TCT) No. 211357; that as part of its functions, the Trustee shall cooperate with CDI in the course of the Project's development, particularly in effecting the condominiumization of the Project and obtaining necessary registrations for the same and the individual Condominium Certificates of Title for the Condominium and Parking Units and the Common Areas; and that under the terms of the Trust Agreement, upon completion of the Project, the Trustee is to execute Deeds of Conveyance conveying in favor of the Investors their respective Condominium and Parking Units and the Common Areas in favor of a Condominium Corporation, without consideration. In reply, please be informed that all sales, exchanges or other dispositions 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, are subject to 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. Accordingly, if as represented, the Investors are the real owners of the aforesaid Condominium and Parking Units and since the transfer is without consideration and the same does not involve actual transfer of ownership, the same is not a taxable transaction; hence, the transfers from the Trustee to the cestui que trust or beneficial owners of the Condominium and Parking Units are not subject to the capital gains tax. Moreover, the deeds conveying said Condominium and Parking Units are not subject to documentary stamp tax pursuant to Section 196 of the Tax Code of 1997 (BIR Ruling No. UN-072 dated February 22, 1994). However, the documentary stamp tax on certificates in the amount of Fifteen Pesos (P15.00) imposed by Section 188 of the Tax Code of 1997 shall be collected. Likewise, the Deed of Conveyance of the Common Areas of the Parque Espaa by the Trustee to the Condominium Corporation is not subject to capital gains tax and the documentary stamp tax on deeds of sale and conveyance of real property imposed by Section 196 of the Tax Code of 1997 for the reason that the same is without consideration since no income therefrom is generated by the Trustee. Moreover, said conveyance is made simply to comply with the requirements of the Condominium Act and for the management of the project for the common benefit of the unit owners (BIR Ruling No. 349-93). Hence, no capital gains tax or creditable tax is payable and collectible. Instead, only the documentary stamp tax on certificates in the amount of Fifteen Pesos (P15.00) imposed by Section 188 of the Tax Code of 1997 shall be collected. This ruling is 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 without force and effect. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)