Zambrano & Gruba Law Offices

April 28, 2010 BIR RULING [DA-(C-008) 055-10] Sec. 27 (D) (2); Sec. 176; Sec. 188; DA-291-05; BIR Ruling No. 031-99 Zambrano & Gruba Law Offices 27th Floor, 88 Corporate Center, 141 Valero Street Salcedo Village, Makati City Attention: Atty. Antero Jose M. Caganda Gentlemen : This refers to your letter dated December 23, 2009 which was received by this Office by way of 1st Indorsement dated January 5, 2010, by Revenue Region No. 4, City of San Fernando, Pampanga, requesting in behalf of your client, Clark Travel and Amusement Philippine Limited ("CTAPL") for a confirmation of its opinion that the transfer and/or assignment of shares of stock in Clark Resort Travel and Amusement Corporation ("CRTAC"), a domestic corporation from designated trustees in favor of CTAPL, the real beneficial owner thereof, is not subject to the income and capital gains taxes imposed under Section 27 (A) and (D) (2), to donors's taxes under Section 98, and to the documentary stamp tax under Section 175, but subject to documentary stamp tax under Section 188, all pursuant to the Tax Code of 1997, as amended. It is represented that on January 6, 2005, Larry Lim, Judy Reyes and Harrison Ng, each being registered owners of eight hundred (800) common shares of stock of CRTAC, executed Declarations of Trust and Deeds of Assignment in favor of CTAPL, the beneficial owner of the shares; that under the Declarations of Trust and Deeds of Assignment, the Trustees acknowledge and confirmed that: 1) the funds used to acquire the shares were advanced by CTAPL; 2) the shares were placed in the name of the Trustees for the benefit of CTAPL, the intent being that the Trustees shall appear as stockholder and will hold the shares only for the benefit and trust for CTAPL; 3) the Trustees held in trust for CTAPL, which is the real and beneficial owner of the shares; 4) for and in consideration of the fact that the funds used to acquire the shares were advanced by CTAPL, the Trustees assigned, transferred and conveyed the shares to CTAPL. In reply, please be informed that while Section 27 (D) (2) of the Tax Code of 1997, as amended, generally imposes a final tax at the rates of 5% and 10% upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange, the rule does not apply in the instant case considering that there is no sale, barter or exchange of the shares of stock in CRTAC since CTAPL is the real owner of the shares which the Trustees held as trustee. Furthermore, in BIR Ruling No. 031-99 dated March 19, 1999, this Office has already ruled that aHECST ". . . the conveyance by the Trustee in favor of the Trustor of the subject properties which the former acquired by virtue of the Trust Agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the Trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties." Thus, since the transfer of the shares by CRTAC, as Trustee, in favor of CTAPL, as Trustor, is without monetary consideration and is merely a confirmation of title/ownership in favor of the beneficial owner, the same is not subject to the income and capital gains taxes imposed under Section 27 (A) and (D) (2) of the Tax Code of 1997, as amended. (BIR Ruling Nos. 031-99 dated March 19, 1999 and DA-291-2005 dated June 27, 2005) Moreover, the transfer of the aforesaid Shares is not subject to the documentary stamp tax imposed under Section 175 of the Tax Code of 1997, as amended by Republic Act No. 9243, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 031-99 dated March 19, 1991) Likewise, the transfer to the Trustor of CRTAC shares held by the Trustees is not subject to donor's tax. Such was the pronouncement of this Office in BIR Ruling No. DA-254-03 dated August 5, 2003, where it was held that the conveyance of shares of stock from the trustee to the beneficial owner is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997, due to lack of donative intent. 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.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group