Esguerra & Blanco Law Offices

February 16, 2009 BIR RULING [DA-(C-026) 091-09] 24 (D), 196; DA-407-06 Esguerra & Blanco Law Offices 4th and 5th Floors, S&L Bldg. Dela Rosa cor. Esteban Sts. Legaspi Village, Makati City Attention: Attys. Magilyn T. Loja and Vivian S. Tan Gentlemen : This refers to your letter dated January 23, 2009 requesting on behalf of your client, Carlos Y. Perez-Rubio for confirmation that the conveyance of several properties as trustee to the beneficiaries shall not be subject to capital gains tax/income tax, value-added tax (VAT) and donor's tax. It is represented that Miguel Angel Y. Perez-Rubio (Miguel) is the registered owner of the following properties: 1) Unit 115, Mahogany Place Townhomes along 45 Doa Juana Rodriguez cor. 10th Sts., New Manila, Quezon City and covered by Transfer Certificate of Title (TCT) No. N-151862; 2) a house and lot located at 217 Acacia Ave., Ayala Alabang Village, Alabang, Muntinlupa City as evidenced by TCT No. S-77049; and 3) a lot without any improvements situated at Lot 27, Block 21 Toledo Place, Alabang Hills Village, Alabang, Muntinlupa City and covered by TCT No. S-58493. He is a resident of 217 Acacia Ave., Ayala Alabang Village, Alabang, Muntinlupa City whose Tax Identification No. (TIN) is 107-043-027. Miguel is desirous of creating and establishing an irrevocable trust in favor of his biological children, Angelica Veronica R. Perez-Rubio and Joseph Gabriel R. Perez-Rubio (hereinafter the beneficiaries). For and in consideration of the love and affection which Miguel has for his children, the latter thru a Deed of Irrevocable Trust with Donation dated October 4, 2000 creates and establishes in favor of the said beneficiaries an irrevocable trust with Carlos Y. Perez-Rubio (Carlos) as the trustee, and for such purpose now transfers all his title, rights and interest over his property over the above-quoted Quezon City property. Carlos is the brother of Miguel and is married to Margarita B. Perez-Rubio who is a resident of 4851 Pasay Rd., Dasmarias Village, Makati City whose TIN is 107-043-001. On the same date, the trustor executed two (2) Deeds of Absolute Sale transferring the Alabang properties to Carlos also as Trustee. The corresponding donor's tax, capital gains tax and documentary stamp tax on the aforementioned transfers were paid to the concerned BIR Revenue District Offices and the corresponding Certificates Authorizing Registration (CAR) Nos. 00089388, 00273155 and 00273154 were all issued on December 4, 2000. Upon payment of the requisite transfer taxes and registration fees, the Registry of Deeds for Quezon City issued TCT No. N-224565 which cancelled TCT No. N-151862, in the name of Carlos, "as Trustee for ANGELA VERONICA R. PEREZ-RUBIO and JOSEPH GABRIEL R. PEREZ-RUBIO, both single, minors, Filipinos as the Beneficiaries." Likewise, the Registry of Deeds for the City of Muntinlupa cancelled TCT Nos. S-77049 and S-58493 and issued TCT Nos. 4975 and 4976, respectively, in the name of "CARLOS Y. PEREZ-RUBIO, TRUSTEE . . ." without indicating therein the names of the beneficiaries. Hence, on January 26, 2001, Carlos executed 2 Deeds of Acknowledgment inasmuch as the aforesaid titles does not disclose who is the beneficial owner of such properties, and in said documents Carlos declares that "NOW, THEREFORE, for and in consideration of the foregoing premises, CARLOS Y. PEREZ-RUBIO hereby acknowledges that the aforedescribed realty was acquired by him pursuant to, and under the terms of, the aforestated Trust created by MIGUEL ANGEL Y. PEREZ-RUBIO such that the beneficial owners of the aforedescribed realty are the BENEFICIARIES." ECaSIT In reply thereto, please be informed that since the conveyance of the above-stated properties by the trustee in favor of the beneficiaries is without monetary consideration, the said transfer is not subject to capital gains tax under Section 24 (D) of the 1997 Tax Code as amended. Likewise, the 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 Regulations. Thus, the deed to be executed by the trustee in favor of the beneficiaries which will be made without valuable consideration is not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code, as amended. However, the notarial acknowledgement to said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Tax Code, as amended. HcTDSA The transfer is likewise not subject to VAT, since under Section 105 of the Tax Code of 1997, any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services and any person who imports goods shall be subject to VAT imposed in Sections 106 to 108 of the same Tax Code. Hence, by transferring said realties Carlos, neither sells, barters, exchanges goods or properties nor renders services to be subject to VAT. Furthermore, since there is no intention on the part of the trustee to donate the above-mentioned assets to the beneficiaries since the latter are the beneficial owners of the same, the transfer therefore shall not also be subject to donor's tax. 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/CAR with regard to the transfer by Carlos Y. Perez-Rubio of the properties in favor of Angelica Veronica R. Perez-Rubio and Joseph Gabriel R. Perez-Rubio without need of presentation of proof of payment of the capital gains tax/creditable withholding tax and documentary stamp tax, donor's tax and value-added tax. HTCSDE 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