Songco Law Office

September 9, 2009 BIR RULING [DA-(C-200) 508-09] 27 (D) (5); 98; 188; #058-95; #104-95; DA-067-2001; DA-514-2003 Songco Law Office Suite 300, Valero Plaza, 124 Valero St. Salcedo Village, Bel-Air Makati City Attention: Atty. Joseph Shelner N. Songco Partner Gentlemen : This refers to your letter dated September 2, 2009 requesting on behalf of your client, Ortigas & Company, Ltd. Partnership ("OCLP or the Partnership"), for confirmation that the reversion of the donated land by the Province of Rizal in favor of OCLP, pursuant to the stipulations under the Deed of Reversion is not subject to capital gains tax, creditable withholding tax, donors tax, and documentary stamp tax (DST) imposed under Section 196 of the Tax Code but only to the P15.00 DST under Section 188 of the same Code. Background On January 25, 1949, Ortigas, Madrigal y Cia., S. En C., now known as OCLP, represented then by Mr. Francisco Ortigas, Jr., and the Provincial Government of Rizal (the "Province"), represented by then Governor Sixto Antonio, duly executed a Deed of Donation, whereby Ortigas & Co. donated to the Province of Rizal two (2) parcels of land situated in the Municipality of Pasig, and covered by Transfer Certificates of Title (TCT) No. 12122 and 11925, with an aggregate area of approximately 100,002 square meters on the condition that it will be used for purposes of building the Capitol of the Province of Rizal and for no other purpose and that the donated properties shall ipso facto revert to the Partnership in the event that the Province violates this condition or decides to move or transfer its provincial capitol to another site. On March 19, 2007, the Sangguniang Panlalawigan of Rizal enacted Ordinance No. 2 Series of 2007, ordering the transfer and relocation of the Provincial Capitol from Pasig City to Yares Center in Antipolo City. Accordingly, A Deed of Reversion dated May 9, 2007 was duly executed between the parties reverting to the Partnership the ownership and possession over the two parcels of land in which the provincial capitol of the Province is located and which is covered by TCT Nos. 12313 and 12314 and which the Partnership duly accepted through a Deed of Acceptance dated October 9, 2007. In reply, please be informed that Article 757 of the Civil Code of the Philippines provides as follows: "Art. 757. Reversion may be validly established in favor of only the donor for any case and circumstances, but not in favor of other persons unless they are all living at the time of the donation. Any reversion stipulated by the donor in favor of a third person in violation of what is provided in the preceding paragraph shall be void, but shall not nullify the donation." From the foregoing provisions of Article 757 of the Civil Code of the Philippines, it is clear that a donation with a reversion clause in favor of the donor can be validly established for any case and circumstances. Thus, the Deed of Reversion executed between the OCLP and the Province, wherein the Province will revert to OCLP the aforesaid two parcels of land in favor of OCLP will not be construed as another form of conveyance such as a sale because said reversion is pursuant to the condition provided in the Deed of Donation executed by the same parties. Hence, the said reversion is not subject to the capital gains tax/creditable withholding tax, donors tax and DST on conveyances of realty. However, it is subject to the DST of P15.00 under Section 188 of the Tax Code of 1997, as amended. (BIR Ruling No. 058-1995 dated March 16, 1995) LLpr Likewise, in BIR Ruling No. DA-514-2003 dated December 16, 2003, this Office held that: "the transfer by the Municipal Government of Tarlac to the donors of the three (3) parcels of land by way of a Deed of Reversion and Reconveyance is not a sale, exchange or other disposition of said properties, hence the same is not subject to the creditable withholding tax under Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001. The reconveyance is not likewise subject to the donor's tax imposed under Section 99 of the Tax Code of 1997 considering that the previous donation was a donation with conditions which must be complied with and the non-compliance thereof would mean the reversion of the donated properties to the original owners as stipulated in the Deed of Donation. The Deed of Reversion and Reconveyance is also not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code, but only to the P15.00 documentary stamp tax under Section 188 of the same Tax Code." EcaDCI In view of the foregoing, this Office confirms your opinion that the reversion of the ownership and possession over the above-mentioned parcels of land from the Provincial Government of Rizal in favor of Ortigas & Company Limited Partnership is not subject to capital gains tax, creditable withholding tax, donors tax, and documentary stamp tax (DST) imposed under Section 196 of the Tax Code but only to the P15.00 DST under Section 188 of the same Code. (BIR Ruling Nos. 058-1995 dated March 16, 1995, DA-067-2001 dated April 20, 2001 and DA-514-2003 dated December 16, 2003) 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. STcEaI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service