Dario Reyes Hocson & Viado Law Firm

May 17, 2010 BIR RULING [DA-(C-011) 063-10] PD 1264; BIR Ruling Nos. DA (C-034) 126-2008; 072-95; 014-99; 128-06; 153-04; 064-98 Dario Reyes Hocson & Viado Law Firm 902-A West Tower, Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Atty. Rodolfo O. Reyes Partner Gentlemen : This refers to your letter dated February 4, 2010 requesting in behalf of your client, the Philippine National Red Cross (PNRC), for a tax exemption on the basis of its disposition of a parcel of land. SIcEHC It is represented that the PNRC is the premiere humanitarian organization in the country and of the entire world; that its main objective is to alleviate human suffering wherever and whenever such situation occur; that the PNRC was chartered and organized in 1947 through Republic Act No. 95, which was amended by Republic Act Nos. 885 and 6373 and later on by Presidential Decree Nos. 1264 and 1643; that the PNRC is imbued with an international character because it was created by virtue of the Philippine's commitments under the Geneva Red Cross Convention; that a Deed of Absolute Sale was executed by and between the Philippine National Red Cross (Seller) and SM Development Corporation (Buyer) on a parcel of land with an area of 18,907 square meters, together with all the improvements, covered by Transfer Certificate of Title No. 491574 issued by the Registry of Deeds for the Province of Rizal; and that you opine that pursuant to the PNRC charter, the sale is exempt from capital gains tax. In reply please be informed that on the basis of Section 4 of Presidential Decree No. 1264, the PNRC is exempt from the payment of capital gains tax on the sale of its real properties. In BIR Ruling No. 072-95 dated April 17, 1995, the BIR exempted the PNRC from the payment of capital gains tax on the sale of its shares of stock in an American company. The facts presented therein are similar hereto, to wit ". . . following the expiration of the Laurel-Langly Agreement which allowed ownership of lands in the Philippines by Americans E.R. Squibb and Sons Philippine Corporation (Squibb) divested itself of its interest on a parcel of land located at Makati, Metro Manila, and donated 60% of its undivided interest in the land to the Philippine National Red Cross (PNRC), thus reducing Squibb's interest over said property to 40%; that thereafter, PNRC and Squibb exchanged their respective 60% and 40% interest for shares of stock of RCS Realty Corporations (RCS); that presently, PNRC holds 240,000 shares of RCS which represents 60% control over said corporation; and that PNRC and Squibb are presently contemplating to sell their respective shares of stocks in RCS to a Philippine National . . ." The legal basis for that ruling was "since the proposed sales of PNRC's shares of stock is part of your fund-raising drives the proceeds of which shall be used to finance your benevolent and humanitarian objectives, the conclusion is justified that the net capital gains to be realized from the sale of said shares of stock, if not listed or traded in the local stock exchange, shall be exempt from the capital gains tax prescribed under Section 24 (e) (2) of the Tax Code." CSDTac Moreover, in BIR Ruling No. DA (C-034) 126-2008 dated August 8, 2008, we likewise exempted the PNRC from the payment of capital gains tax on the sale of its property formerly owned by Procter and Gamble inasmuch as the same was undertaken in connection with the PNRC's fund raising activities, to wit: "Based on the above rulings and precedents alone, we rule that the PNRC is exempt from the payment of capital gains tax on the sale of such real property. xxx xxx xxx "In view of the foregoing, your request for a ruling that the PNRC is exempt from the payment of capital gains tax on the sale of its real properties is hereby confirmed on the basis that Section 4 of Presidential Decree No. 1264 provided that the sale of the said property is connected with the PNRC's fund raising activities." Inasmuch as the facts and legal bases set forth in the sale by the PNRC of its real properties are practically on all fours with the ruling on the sale of the PNRC's shares of stock, we see no cogent reason to depart from this doctrine. In view of the above, your request for a ruling that the PNRC is exempt from the payment of capital gains tax on the sale of its real properties to SM Development Corporation is hereby confirmed on the basis that Section 4 of Presidential Decree No. 1264 provided that the sale of the said property is connected with the PNRC's fund raising activities. (BIR Ruling Nos. DA-153-04 dated March 31, 2004, 064-98 dated May 21, 1998, 128-06 dated March 16, 2006, 014-99 dated February 01, 1999, 072-95 dated April 17, 1995) 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. SCaIcA Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group