Ms. Nelly J. Ledesma

August 6, 2008 BIR RULING [DA-(C-026) 113-08] 27 (D) (5); 196; DA-325-2004 Ms. Nelly J. Ledesma No. 9 Tampingco Street San Lorenzo Village, Makati City M a d a m : This is to request for a ruling that the sale by REMCOR, INC. of a real property held in trust for and behalf of its majority stockholder, Remedios J. Jison, is subject to the capital gains tax as the same is a capital asset of the latter, the true owner thereof. AHCcET It is represented that in early 1984, Remedios J. Jison was desirous to acquire a real property located in Tampingco St., San Lorenzo Village, Makati City, to be constituted as a residence for the use of the members of her family. She planned to mortgage the above property after acquisition to obtain funds to be used in the renovation and/or construction of the family residential house. For the convenience, speedy and easy approval of the loan to be applied for by Remedios J. Jison for the above purpose, she deemed it wise to have the property registered under the name of a corporation, hence, the inception of REMCOR, INC. REMCOR, INC. acted as the buyer of the above realty, although in realty it was Remedios J. Jison who actually bought the property as the funds used in buying the same came from her as at that time, REMCOR, INC. was then newly organized with no substantial funds to acquire the above property. Remedios J. Jison was and is currently the majority stockholder of the REMCOR, INC. which has stockholders who are family members of the former. HaECDI By reason of the above conveyance of the above-mentioned realty in favor of REMCOR, INC., posing as buyer thereof, an implied trust is deemed by law to have been created whereby REMCOR, INC. holds the above-mentioned property as trustee for and in behalf of Remedios J. Jison pursuant to Article 1453 of the Civil Code of the Philippines. Remedios J. Jison and REMCOR, INC. formally and expressly recognized such trust by executing a Declaration of Trust on July 8, 1991, whereby REMCOR, INC. openly or expressly acknowledged and declared that the realty covered by Transfer Certificate of Title No. 133607 of the Registry of Deeds of Makati, Metro Manila, is in actuality owned by Remedios J. Jison and that it is only holding the title thereto as TRUSTEE, for and in behalf of the latter. From the foregoing, you are requesting a ruling that since the above property is held in trust only by REMCOR, INC., it never therefore formed part of its inventory of property for sale as it is engaged in the realty business in Silay City, Negros Occidental. As such, and since it is not part of its inventory of property for sale in the course of its realty business, said property therefore is aptly classified as a capital asset. Hence, proceeds of the sale of said property is not subject to the creditable withholding tax, corporate income tax and value-added tax. ACcISa In reply, please be informed that Article 1448 of the Civil Code of the Philippines provides as follows: "ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. . . . ." Considering that in the instant case, it was Remedios J. Jison who purchased the subject parcel of land through REMCOR, INC., using her personal funds and with the understanding that REMCOR, INC. only holds the legal title to the property and the equitable title thereto remains with her, an implied trust under Art. 1448 of the Civil Code of the Philippines, therefore, was created. As such, the subject property has never become part of the inventory of properties of REMCOR, INC. The foregoing has been affirmed by the parties by their execution of a Declaration of Trust dated July 8, 1991. Thus, as a consequence thereof, the subsequent disposition of the subject property by REMCOR, INC., for and in behalf of the beneficial owner, Remedios J. Jison, shall be subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. The real seller in the obtaining situation is in actuality an individual taxpayer, Remedios J. Jison, the trustor. REMCOR, INC. acted only as a conduit of Remedios J. Jison. ITDHcA Such being the case, and since REMCOR, INC. is only acting as a trustee, its subsequent disposition of the property held in trust, is, therefore, not subject to the corporate income tax imposed under Section 27 of the Tax Code of 1997, as amended, and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as amended (BIR Ruling No. DA-325-2004 dated June 16, 2004). Moreover, the said transaction is not subject to the value-added tax imposed under Section 106 (A) (1) of the Tax Code of 1997, as amended. The said disposition of real property, however, shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. The said tax shall be based on the actual consideration or the fair market value of the subject property, whichever is higher, in accordance with Section 6 (E) of the same Tax Code. 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. ISTCHE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service