Mr. Pacifico B. Aniag

December 27, 2007 BIR RULING [DA-687-07] 27 (D) (5), 57 (B), 196, 188; 048-95 Mr. Pacifico B. Aniag Bo. Atlag, Malolos, Bulacan S i r : This refers to your letter dated September 5, 2007 requesting for an opinion as to the tax consequences of the transfer of several real properties pursuant to a Compromise Agreement, the terms and conditions of which are stated in a Decision of the Regional Trial Court (RTC) Branch 84, Third Judicial Region, Malolos, Bulacan, portions of which are quoted as follows: "WHEREAS, on April 25, 1996, defendant Enrian Development Corporation executed in favor of defendant Real Bank a Real Estate Mortgage covering several pieces of real property embraced by the following certificates of title: 1. TCT No. RT-2173 (T-278956), now TCT No. T-165904; 2. TCT No. RT-2174 (T-278957), now TCT No. T-165903; 3. TCT No. RT-2175 (T-278958), now TCT No. T-165902; 4. TCT No. RT-2176 (T-278959), now TCT No. T-165901; 5. TCT No. RT-2177 (T-278960), now TCT No. T-165900; 6. TCT No. RT-2178 (T-278961), now TCT No. T-165905; 7. TCT No. RT-2179 (T-278962), now TCT No. T-165898; 8. TCT No. RT-2180 (T-278964), now TCT No. T-165899; 9. TCT No. RT-45916 (T-278963), now TCT No. T-165897; 10. TCT No. RT-45919 (T-278966), now TCT No. T-165896. CSDcTH WHEREAS, on June 28, 2002, the herein plaintiff Francisco B. Aniag, Jr., in his capacity as stockholder of defendant Enrian, filed the instant action for the annulment of the aforesaid real estate mortgage and of the subsequent extra-judicial foreclosure thereof initiated by defendant Real Bank; WHEREAS, on November 25, 2005, defendant Real Bank filed with Branch 7 of this Honorable Court a petition for the issuance of a writ of possession over the same properties mentioned above; WHEREAS, on May 6, 2006, the herein plaintiff filed with the Court of Appeals a special ( sic ) action for certiorari (CA-G.R. SP No. 94319) assailing the order granting the petition for issuance of writ of possession; WHEREAS, in order to terminate all the cases which have arisen, and/or m(a)y hereafter arise, as a result of the mortgage and foreclosure of the aforesaid properties; NOW THEREFORE, in consideration of the foregoing premises, the parties do hereby agree as follows: 1. The plaintiff Francisco B. Aniag, Jr. and defendant Enrian Development Corporation shall recognize the full and absolute ownership of defendant Real Bank over the properties covered by TCT Nos. T-165898; T-165899, T-165900, T-165901, T-165902, T165903, T-165904 and T-165905, together with all the improvements that may be found existing thereon; 2. The plaintiff Francisco B. Aniag, Jr. and defendant Enrian Development Corp. shall furthermore waive, abandon, renounce, relinquish and forego any and all cause or causes of action which have arisen, or may arise, from the promissory notes executed by the defendant corporation and the real estate mortgage subject matter of the instant case, and any other cause or causes of which may have a reasonable connection thereto. On the other hand, defendant Real Bank waves, abandons, relinquishes any and all claim or cause of action for the recovery of any and all deficiency that resulted, or that may result, from the price obtained in the sale of the foreclosed properties at public auction and the outstanding mortgage obligation at the time of the foreclosure; 3. As a consequence of such recognition, the notice ( sic ) of lis pendens that had been annotated on the titles of the aforesaid properties shall be lifted and cancelled; 4. After the cancellation of the notices aforesaid, the parties simultaneously swap the following properties with each other; 4.1 A parcel of land containing an area of 788 square meters and covered by TCT No. T-165897 and registered in the name of Real Bank shall be transferred and conveyed to Pacifico B. Aniag, married to Alice Aniag; 4.2 A parcel of land containing an area of 288 square meters and covered by TCT No. T-165896 and registered in the name of Real Bank shall be transferred and conveyed to (a) Francisco B. Aniag, Jr. separated in fact, (b) Pacifico B. Aniag ( sic ), married to Alice U. Aniag, and (c) Orlando B. Aniag, married to Nora P. Aniag; 4.3 A parcel of land containing an area of 300 square meters and covered by TCT No. T-112009 and registered in the name of Pacifico B. Aniag and Alice U. Aniag shall be transferred and conveyed to the Real Bank, free from all liens and encumbrances; 5. Any and all expenses related to the transfer, such as, but not limited to, the taxes, registration fees and notarization fees, of the aforesaid properties shall be for the account of the transferees, provided that prior to the transfer of the properties aforementioned, the necessary ratification shall be obtained from the Board of Directors of the respective corporate parties; cDHCAE xxx xxx xxx" In reply thereto, please be informed that since the conveyance of the above-mentioned properties is without monetary consideration and is a result of a Compromise Agreement approved by the Court, 1 the transfer thereof is not subject to capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997 and creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the 1997 Tax Code. Furthermore, conveyance of realties to trustees or other persons without consideration is not taxable under Section 185 of Revenue Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax (DST) Regulations. Consequently, the deed of conveyance to be executed by the herein parties to effect the transfer which will be made without valuable consideration is not subject to the DST imposed under Section 196 of the 1997 Tax Code, as amended. However, the notarial acknowledgement to said deeds is subject to the DST of P15.00 pursuant to Section 188 of the same Tax Code, as amended. This will authorize the Revenue District Officer (RDO) of the revenue district where the subject properties are located to issue the corresponding Tax Clearance Certificate/Certificate Authorizing Registration with regard to the foregoing transfers without need of presentation of proof of payment of the capital gains tax/creditable withholding tax and documentary stamp tax. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. BIR Ruling No. 048-95 dated March 7, 1995.