Sales Sta. Ana Rodrigo Law Office

August 27, 2008 BIR RULING [DA-(C-050) 177-08] 24 (D) (1); DA-662-99; UN-072-94 Sales Sta. Ana Rodrigo Law Office Unit 1006, 10/F, Citystate Centre 709 Shaw Boulevard, Pasig City Attention: Atty. Luis Francis A. Rodrigo, Jr. Gentlemen : This refers to your letter dated July 9, 2008 stating that your client, LBC Comunidades Development, Inc. (LCDI), is a corporation duly organized and existing under the laws of the Republic of the Philippines; that LCDI has implemented an innovative approach or business model to commercial, office and residential ownership adapted from the Spanish Model practiced for the past twenty-five (25) years and known as the Regimen de Comunidad de Proprietario ("Private Ownership Community") but modified to take into account the relevant laws, regulations and practices in the Philippines; that under such scheme, LCDI acts as project proponent/organizer and as such identifies a parcel of land on which the project shall be established and finds investors who shall themselves undertake and participate in the collective development of the same project and who shall eventually be the owners of the individual units which comprise the same (the "Investors"); that LCDI is now in the process of completing a project located at No. 333 San Rafael Street, San Miguel District, Manila, with a total area of 2,168.80 square meters covered by Transfer Certificate of Title (TCT) Nos. 269219 and 269220 of the Registry of Deeds for City of Manila (the "Subject Land") which shall be developed into a residential condominium project to be known as the "La Casarita Project (the "Project"); that each Investor entered into a Memorandum of Agreement with LCDI (the "MOA") where each Investor undertook to collectively develop the Project and to put up his/her respective capital contributions for the same and in return for such participation and as part of his/her interest in the Project, each Investor was assigned specific condominium units and parking units in the Project (the "Condominium Units" and "Parking Units"); that in addition, the Investor was to have a proportionate undivided interest in the common areas of the Project, which common areas includes the Subject Land (the "Common-Areas"); that for its part, LCDI was given a mandate to manage and administer the development of the project and in connection thereto, to execute acts on behalf of and for the collective benefit of the Investors; that LCDI, however, did not and does not assume the, role of developer and hence has not made any representation that it is, in its own capacity selling the units comprising the project; that under the terms of the MOA, each Investor agreed that prior to the actual division of the Project into individual units, their respective interests in the Project would consist in a pro-indiviso, pro-rata share, held collectively with the other Investors; that realizing, however, that it would be cumbersome and administratively difficult for all the Investors to be named as owners of the Subject Land and the Project, various trust agreements were executed by the Investors, as Trustors, and LCDI, as Trustee, for the purpose of allowing the Trustee to hold title to the Subject Land and the Project; that at the same time that the Trustors executed the Trust Agreements, their respective initial capital contributions were remitted to the Trustee with the instructions for the Trustee to purchase the Subject Land for the collective benefit of the Investors and in proportion to their respective interests in the Project; that the Trustee was instructed to hold and disburse the funds as and when necessary for the development of the Project using the Investors' additional capital contributions; that in accordance with such direction, the Trustee then purchased the Subject Land and registered the same in its own name under TCT Nos. 275891 and 275892; that as part of its functions, LCDI, as Trustee for various investors and in its capacity as Project Proponent, shall coordinate during the course of the Project's development, particularly in effecting the condominiumization of the Project and obtaining necessary registrations for the same and the individual Condominium Certificates of Title for the Condominium and Parking Units and the Common Areas; and that under the terms of the Trust Agreement, upon completion of the Project, the Trustee, is to execute Deeds of Conveyances conveying in favor of the Investors their respective Condominium and Parking Units and the Common Areas in favor of a Condominium Corporation, without consideration. ACIDSc On the basis of the foregoing, you are requesting confirmation of your opinion as follows: 1) The conveyance of the condominium and parking units by LCDI, the Trustee, to the individual Trustors and the transfer of the common areas and facilities of the La Casarita Condominium Project by the same Trustee in favor of the La Casarita Condominium Corporation are not subject to the 6% capital gains tax (CGT) under Section 27 (D) (5) of the Tax Code of 1997, as amended, the documentary stamp tax (DST) on deeds of sale and conveyance of real property imposed under Section 196, and the value-added tax (VAT) under Section 106 (A) (1) of the same Code; 2) The conveyance of the common areas of the La Casarita Condominium Project by the Trustee to the La Casarita Condominium Corporation is not subject to the 6% capital gains tax (CGT) under Section 27 (D) (5) of the Tax Code of 1997, as amended, the documentary stamp tax (DST) on deeds of sale and conveyance of real property imposed under Section 196, and the value-added tax (VAT) under Section 106 (A) (1) of the same Code; and 3) The approval of your request for ruling be continuously availed of and applied by your client as proof of the exempt status for all future projects, in its capacity as project proponent/organizer, that substantially conform with the above Comunidades model. In reply, please be informed that all sales, exchanges or other dispositions of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, are subject to a final tax of six percent (6%) based on the gross selling price or current fair market value, as determined in accordance with Section 6 (E) of the Tax Code of 1997, as amended, whichever is higher. Accordingly, if as represented, the Investors are the real owners of the aforesaid condominium and parking units and since the, transfer is without consideration and the same does not involve actual transfer of ownership the same is not a taxable transaction; hence, the transfers from the Trustee to the 'cestui que trust' or beneficial owners of the condominium and parking units are not subject to the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as amended, income tax imposed under Section 27 (A) of the same Code, and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as amended, implementing Section 57 of the Tax Code. Moreover, the said transfers are not subject to the value-added tax imposed under Section 106 (A) (1) of the same Tax Code, the same not being a sale transaction and not made in the regular course of trade or business. Further, the deeds conveying said condominium and parking units are not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997 (BIR Ruling No. 662-99 dated November 29, 1999 citing UN-072 dated February 22, 1994). However, the documentary stamp tax on certificates in the amount of Fifteen Pesos (P15.00) imposed by Section 188 of the Tax Code of 1997, as amended, shall be collected. cTCaEA Likewise, the Deed of Conveyance of the common areas of the La Casarita Condominium Project by LCDI, the Trustee, to the La Casarita Condominium Corporation is not subject to capital gains tax, value-added tax and the documentary stamp tax on deeds of sale and conveyance of real property imposed under Sections 27 (D) (5), 106 (A) (1) and 196 of the Tax Code of 1997, as amended, respectively, for the reason that the same is without consideration since no income therefrom is generated by the Trustee. Moreover, said conveyance is made simply to comply with the requirements of the Condominium Act and for the management of the project for the common benefit of the unit owners (BIR Ruling No. 349-93). A documentary stamp tax in the amount of Fifteen Pesos (P15.00), however, shall be imposed on the said deeds of conveyance pursuant to Section 188 of the Tax Code of 1997, as amended. Finally, your request that the tax exemption herein granted shall be continuously availed of and applied by your client in its capacity as project proponent/organizer, as proof of the exempt status for all of its future projects, as long as each project conforms substantially to the above Comunidades model, is hereby denied. The grant of exemption, as a matter of policy, is extended to taxpayers on a case to case basis. As such, the above exemption from taxes is granted to apply only to the particular case as herein presented. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service