Tan & Concepcion Law Offices

October 14, 2008 BIR RULING [DA-(C-091) 291-08] 24 (C); DA-116-2006; DA-121-2006 Tan & Concepcion Law Offices 6760 Ayala Avenue 1226 Makati City Attention: Atty. Fides C. Cordero-Tan Partner Gentlemen : This refers to your letter dated August 19, 2008 requesting on behalf of your client, United Overseas Bank Philippines ("UOBP"), for confirmation of your opinion that the transfer of shares of stock in a domestic corporation by a trustee in favor of the trustor-beneficial owner is not subject to capital gains tax, donor's tax and documentary stamp tax. The facts, as represented, are as follows: 1. UOBP is a corporation organized under Philippine laws and authorized to engage in banking operations. It is wholly-owned by the United Overseas Bank Limited ("UOBL"), a non-resident foreign corporation organized and existing under the laws of Singapore. 2. UOBP holds in its name a total of 22,429,906 common shares (the "Shares") of the capital stock of Banco de Oro Universal Bank ("BDUB"). It purchased the Shares at the instance, and in behalf and for the benefit of UOBL which provided UOBP with the entirety of the purchase price for the Shares of not less than P600,000,000.00. 3. In a Declaration of Trust dated February 8, 2006, UOBP acknowledges the legal title of UOBL over the Shares, and the latter's ownership and consequent proprietary rights over the same, including rights of transfer and disposition. HECaTD 4. On July 13, 2006, UOBP and UOBL executed a Revocation of Trust and Deed of Assignment, whereby for reasons stated therein, the parties revoked the trust and the trustee UOBP transferred and assigned the Shares to the trustor UOBL. In reply, please be informed that your opinion is hereby confirmed as follows: 1. While Section 24 (C) of the Tax Code of 1997 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 since UOBL is the real owner of the Shares which UOBP held as a trustee. Accordingly, the transfer of the Shares from the Trustee, UOBP, to the Trustor, UOBL, the real owner thereof, without monetary consideration and by virtue of a "Revocation of Trust and Deed of Assignment", is not subject to capital gains tax. (BIR Ruling No. DA-142-2003 dated May 5, 2003) Furthermore, in BIR Ruling No. 031-99 dated March 19, 1999, this Office has already ruled that ". . . 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." 2. Well-settled in our jurisprudence is the fact that the essential elements of a valid donation are: (1) the reduction of the patrimony of the donor, (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality (animus donandi). Clearly, there is no intention on the part of UOBP to donate to UOBL the Shares which it held in trust for the latter. Thus, the aforesaid transfer/assignment of the Shares will not be subject to gift tax since there is no intention to donate, and the transaction is merely to be treated as a continuation and confirmation of ownership in favor of the ultimate and real beneficiary of the Shares. acHITE 3. Finally, the Revocation of Trust and Deed of Assignment is not subject to the documentary stamp tax imposed under Section 175 of the 1997 Tax Code, as amended by R.A. 9243, but only to the documentary stamp tax on certificates under Section 188 of the Tax Code, supra. (BIR Ruling No. 115-94) 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