DeGuzman Celis & Dionisio Law Offices

November 19, 2008 BIR RULING [DA-(C-140) 450-08] DA 111-06 DeGuzman Celis & Dionisio Law Offices Suite C, 15th Floor, Strata A 2000 Building F. Ortigas Jr. Road, Ortigas Center Pasig City Attention: Atty. Mariano L. Celis II and Atty. Amalia E. Dionisio Gentlemen : This refers to your letter dated November 5, 2008 stating that the late Wellington D. Ty was a registered stockholder of Wellington Investment and Manufacturing Corporation (WIMC),a corporation organized and existing under the laws of the Philippines, to the extent of 5.8395% of WIMC's issued and outstanding shares inclusive of 0.0008% each or 44 shares (as nominee qualifying share) each held by his trustees/nominees to the Board of Directors of WIMC, Messrs. Huang Yulo and Roberto Lim; that in order to acknowledge and confirm that said Messrs. Yulo and Lim held the said 44 shares each in WIMC in trust and for the benefit of the beneficial owner Wellington D. Ty, they executed a Declaration of Trust with Assignment wherein they declared and confirmed that the said shares of stock were paid in full with the funds/monies belonging to Wellington D. Ty and acknowledged, declared and confirmed that all fruits and dividends arising from the said shares are also held in trust by them for Wellington D. Ty; that on December 10, 1987, the Board of Directors of WIMC declared property dividend covering real properties located at Bo. Molino, Municipalities of Bacoor, Imus and Dasmarias in favor of its stockholders; that Messrs. Yulo and Lim, being trustees of Wellington D. Ty, were given an allocation of the property dividend and were registered as co-owners of said real properties which are now covered by the following Transfer Certificates of Title of the Register of Deeds of Trece Martirez, to wit: TCT No. TCT No. TCT No. T-339686 T-1127078 871596 T-322602 T-1127072 871597 T-807140 T-1127060 871598 T-807134 871604 871599 T-739161 871605 871600 T-807735 871606 871601 T-807137 871607 871602 T-807139 871608 871603 T-807141 871609 T-368180 871610 T-339685 871595 that on April 27, 2005, the stockholders of WIMC who were the co-owners of the said real properties declared as property dividend, executed a Partial Partition Agreement whereby they agreed to partition the said real properties received as dividends; that Messrs. Yulo and Lim, being merely trustees of Wellington D. Ty did not participate in the said partition and that their share on the property were allocated to their principal, Wellington D. Ty, in accordance with the Declaration of Trust with Assignment; that the heirs of Wellington D. Ty, who died on February 9, 2001 had recognized the said Declaration of Trust with Assignment and had declared Wellington D. Ty's share (including those allocated to said Trustees Messrs. Yulo and Lim),on the property dividend in the settlement of his estate and in the payment of his estate tax; and that when the heirs of the late Wellington D. Ty presented the Partial Partition Agreement with the Register of Deeds of Cavite, the latter required the heirs to pay a donor's tax for Messrs. Yulo and Lim's waiver of their rights over the said real properties in favor of Wellington D. Ty. Based on the foregoing representations, you now request for confirmation of your opinion that no donor's tax, capital gains tax and corresponding documentary stamp tax are payable on the assignment of shares by a trustee in favor of the beneficial owner, as well as on all dividends due thereon. DCATHS In reply thereto, please be informed that Article 1448 of the Civil Code provides that 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. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. Moreover, Article 1453 of the Civil Code provides that when the property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. In the instant case, an implied trust is deemed created by law. The transfer of the aforesaid shares of stock in WIMC together with all dividends which are due or may be due thereon by the trustees, Messrs. Yulo and Lim in favor of the late Wellington D. Ty, the beneficial owner, without monetary consideration by way of Declaration of Trust with Assignment is neither a sale, barter, exchange nor other disposition contemplated in Section 24 (C) of the Tax Code of 1997 and consequently not subject to capital gains tax. Moreover, Section 185 of Regulations No. 26 provides that conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Declaration of Trust with Assignment by the trustees in favor of the late Wellington D. Ty, as the true and beneficial owners, is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, as amended by R.A. No. 9243, but subject to the P15.00 documentary stamp tax prescribed in Section 188, supra. Finally, the above transactions are not subject to donor's tax imposed under Section 99 of the Tax Code as there is no intention to donate on the part of the parties. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service