Aranas Consunji & Barleta Law Offices

July 14, 2009 BIR RULING [DA-(C-126) 371-09] Section 24 (C), R.A. 9243; DA-367-03 Aranas Consunji & Barleta Law Offices Unit 106 G/F Le Metropole Condominium Tordesillas Corner Dela Costa Streets, Salcedo Village, Makati City Attention: Atty. Ma. Louella M. Aranas Gentlemen : This refers to your letter dated January 16, 2009, requesting on behalf of your client, Titan International Gaming Corporation (TIGC), for a confirmation of your opinion that the transfer of the nominee shares of stocks by Ma. Louella M. Aranas, Jesus Clint O. Aranas, Rhea A. Jaro, Faith B. Cappleman and Riz A. Cimafranca (collectively referred to as the "Trustees") to Gary Lu (herein referred to as the "Trustor") is not subject to capital gains tax, donor's tax, and documentary stamp tax. IAETSC It is represented that the Trustees are all of legal age, with postal address at Unit 106 G/F Le Metropole Building, 326 Tordesillas cor. H.V. Dela Costa Sts., Salcedo Village, Makati City, Metro Manila; that all are registered subscribers of shares of stocks; that the Trustor is of legal age, Canadian and with postal address at No. 35 Sta. Ana St. Magallanes Village, Makati City; and that TGIC is a domestic corporation existing under the laws of the Philippines with Securities and Exchange Commission (SEC) Registration No. CS200717828 with office address at * It is further represented that on 28 November 2007, the Trustor and the Trustees collectively entered into a Declaration of Trust and Deed of Assignment assigning to the Trustees the two thousand five hundred (2,500) shares of stock in TIGC, which said shares are merely held by the Trustees in such capacity for the Trustor, the beneficial owner of the shares; and that the Deed of Assignment was executed by the Trustees and Trustor over the said shares without monetary consideration for the purpose of consolidating the title and beneficial ownership and thereby terminating the parties' trust agreement. In reply, please be informed as follows: 1. Under Section 24 (C) of the Tax Code of 1997, a final tax at the rates of 5% and 10% shall be imposed 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. However, for transfer of stocks by trustees to the beneficial owner, this office had an occasion to rule that: "the transfer of shares from the trustees to the trustors, the real owners therefor, without monetary consideration and by virtue of the Deeds of Trust and Assignment, is not subject to the capital gains tax" since there is no sale, barter or exchange of shares of stock to speak of. (BIR Ruling DA-254-03 dated 5 August 2003; BIR Ruling No. DA-367-03 dated 14 October 2003; BIR Ruling No. 365-03 dated 13 December 2003; BIR Ruling No. DA-080-02 dated 19 April 2002; BIR Ruling DA-283-08 dated 12 May 2008). DHETIS In addition, BIR Ruling No. 031-99 dated March 19, 1999 held 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." Accordingly, the transfer of shares by the Trustees to the Trustor is not subject to capital gains tax imposed under Section 24 (C) of the Tax Code of 1997. 2. Under Section 175 of the Tax Code, as amended by Republic Act No. 9243, the transfer of shares of stock is subject to documentary stamp tax (DST). However, this office has consistently ruled that Deeds of Trust and Assignment, pursuant to which the trustors instructed the trustees to transfer the shares in the name of the trustors, are not subject to the DST, but only to the stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 031-99 dated 19 March 1999; BIR Ruling No. DA-080-02 dated 29 April 2002; BIR Ruling No. DA-254-03 dated 5 August 2003; BIR Ruling No. DA-365-03 dated 13 October 2003; and BIR Ruling No. DA-367-03 dated 14 October 2003) Thus, the transfer by the Trustees to the Trustor of the shares in TIGC is not subject to the DST imposed under Section 175 of the Tax Code. SCaIcA 3. Likewise, the transfer to the Trustor of TIGC shares held by the Trustees is not subject to donor's tax. Such was the pronouncement of this office in BIR Ruling No. DA-254-03 dated 5 August 2003, where it was held that the conveyance of shares of stock from the trustee to the beneficial owner is not subject to donor's tax imposed under Section 98 of the Tax Code, due to lack of donative intent. 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 void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service