Peter Paul Philippines, Inc.

December 24, 2008 BIR RULING [DA-(C-187) 579-08] 27 (D) (5); 196; RR 2-98; DA (I-016) 196-2008 Peter Paul Philippines, Inc. 3/F, JMT Corporate Condominium ADB Avenue, Ortigas, Pasig City Attention: Mr. Jose T. Quimson President Gentlemen : This refers to your letter dated September 28, 2008 requesting for a ruling relative to the tax consequence on the transfer of real properties by the Philippine Coconut Authority (PCA) in favor of the Peter Paul Philippines, Inc. ("Peter Paul" for brevity) pursuant to the court approved Compromise Agreement in Civil Case No. Q-91-7884, for the Recovery of Properties, Sum of Money & Damage with Application for Writ of Replevin. SECcAI The facts antecedent are as follows: On February 4, 1991, Peter Paul filed a civil case entitled "Peter Paul Philippines, et al. vs. Philippine Coconut Authority, et al.", docketed as Civil Case No. Q-91-7884, for the Recovery of Properties, Sum of Money & Damage with Application for Writ of Replevin, against PCA covering the ownership of the assets of the now defunct Desiccated Coconut Rationalization Fund (DCNRF). PCA recognizing that Peter Paul, the only remaining plaintiff in the above civil case and one of the stakeholders in the coconut industry, part owner therefore of the assets of the defunct DCNRF, and Peter Paul recognizing the benefits derived from the desiccated coconut rationalization program of PCA, are bound by mutual interest in the development and advancement of the industry, and finding the offer of settlement as an opportunity to finally settle their respective claims against each other, (the complaint by Peter Paul being mainly anchored on alleged overpayments to PCA, and the complaint of PCA grounded on unpaid PCA fees by Peter Paul), and there being all earnest indications that amicably settling the case would work to serve the best interest of justice among the parties, PCA and Peter Paul, for and in consideration of the foregoing, agreed to settle the above civil case and entered into a Compromise Agreement whereby they agreed that Peter Paul shall be entitled to a portion of the residual DCNRF assets constituting one-fourth thereof, which shall be shared between PCA and Peter Paul in the following manner: 1) Sixty per cent (60%) equivalent to P36,110,523.59 shall be transferred and paid by PCA to Peter Paul consisting of (a) the Polaris Property with a value of P22,874,500.00 and covered by the Torrens Titles, sequentially numbered from TCT No. T-183313 up to TCT No. T-183326 issued by the Register of Deeds for the Province of Quezon, comprising a total aggregate area of 41,590 square meters; (b) portion of the DCNRF cash amounting to P13,236,023.59; 2) Forty per cent (40%) equivalent to P24,073,682.30 shall be retained by PCA. The Regional Trial Court found the Compromise Agreement in accord with law, morals and public policy, approved the same and rendered Judgment in the case based on the Compromise Agreement and ordered the parties to faithfully comply with the prestations thereof. The Court Order was dated August 8, 2008. From the foregoing, PCA proposed to execute a Deed of Conveyance pursuant to the Court Order, whereby as the administrator of the assets of the defunct DCNRF, it will transfer to Peter Paul all its rights, interests and title to the real properties covered by TCT No. T-183313 up to TCT No. T-183326 issued by the Register of Deeds for the Province of Quezon, representing the share and ownership of Peter Paul in the assets of the defunct DCNRF. In view of the foregoing, you are requesting that the above conveyance of real properties shall be exempt from the payment of the capital gains and documentary stamp taxes, considering that the said conveyance shall be made only by PCA in recognition of the prior ownership of Peter Paul of the residual assets of the defunct DCNRF. In reply, please be informed that in BIR Ruling No. DA (I-016) 196-2008 dated September 5, 2008, wherein the facts of the case involve the return of real properties to the owners of the same, without monetary consideration, by virtue of a court approved compromise settlement, this Office ruled that the said reconveyance is not subject to the capital gains and documentary stamp taxes imposed under Section 24 (D) (1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57 (B) of the Tax Code of 1997, and Section 196 of the same Code respectively. HDTISa Following the stand of this Office as laid down in the above ruling, the reconveyance by PCA of the above assets of the defunct DCNRF, particularly, the real properties covered by TCT No. T-183313 up to TCT No. T-183326 issued by the Register of Deeds for the Province of Quezon, in its capacity as the Administrator thereof, to Peter Paul, without any monetary consideration as it will be done purely by PCA in accordance with the court approved compromise agreement, whereby it recognizes Peter Paul's part ownership of the assets of the said defunct agency, therefore, is not subject to income tax and the capital gains tax imposed under Section 27 of the Tax Code of 1997, as amended, nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the same Tax Code. The said transfer, likewise, is not subject to the donor's tax imposed under Section 98 of the same Tax Code. Moreover, the said transfer of properties is not subject to the documentary stamp tax imposed under Section 196 of the same Code. However, the notarial acknowledgment to the said deed of reconveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997, as amended. CSIDTc 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