Bernaldo Directo & Po Law Offices

October 23, 2009 BIR RULING [DA-(C-242) 618-09] RA 4726; BIR Ruling No. DA-664-2007 dtd. 12/19/07 Bernaldo Directo & Po Law Offices Unit 1807 Cityland Condominium 10 Tower 1, 6815 Ayala Avenue cor. H.V. dela Costa St., Makati City Attention: Pepito G. Po Partner Gentlemen : This refers to your letter dated June 09, 2009 requesting on behalf of your client, Asian Star Condominium Corporation ( "Asian Star" for brevity), for confirmation of your opinion that the reconveyance of the mother title of Asian Star Building from Metropolitan Bank & Trust Company to Asian Star in compliance with Republic Act No. 4726, otherwise known as "The Condominium Act", as amended, is exempt from capital gains tax/expanded withholding tax, value-added tax and documentary stamp tax. The facts of the case are as follows: Asian Star Condominium Corporation is a non-stock, non-profit corporation duly organized and existing under the laws of the Philippines, with office address at Asian Star Building, Asean Drive corner Singapura Lane, Filinvest Corporate City, Alabang, Muntinlupa City. Its primary purposes are to hold in its name title to the parcels of land and common areas on which the Asian Star building is located and to act as the managing body which shall operate, control and oversee the operations of the Asian Star Building. Metropolitan Bank and Trust Company ( "Metrobank" for brevity), is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with office address at Metrobank Plaza, Sen. Gil Puyat Avenue, Makati City; whereas Asian Appraisal Holdings, Inc. ("AAHI" for brevity), is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with office address at 12th Floor Planters Development Bank Building, Sen. Gil Puyat Avenue, Makati City, which is the developer of the "Asian Star Building". TDEASC Sometime this year in one of the meetings of the Board of Trustees, one of the trustees popped up a question as to who is safekeeping the two (2) mother titles of the Asian Star Building, namely: Transfer Certificates of Title Nos. 205967 & 205969 (now TCT Nos. 6998 & 6999), and after a lengthy discussion on the matter, the trustees were surprised to learn that the said two (2) mother titles were inadvertently transferred from AAHI to Metrobank and that the same were inadvertently registered in the name of Metrobank. Per records with the Registry of Deeds, it shows that in 2008, AAHI entered into a Deed of Dacion en Pago with Metrobank wherein the former relinquished several Condominium Certificate of Titles (CCT) over a number of condominium units in payment for its debt to the latter. However, the parties inadvertently included the two (2) mother titles of the Asian Star Building, which supposedly should have been turned-over by AAHI to Asian Star as required under Republic Act No. 4726, as amended, otherwise known as "The Condominium Act" and the amended Master Deed with Declaration of Restrictions of Asian Star Building dated March 09, 1998. That by virtue of the said Dacion en Pago , Metrobank was able to transfer the CCTs and the two (2) mother titles in its name. As a result of the above mistake in the transfer of the two (2) mother titles, which Metrobank recognizes and acknowledges, Asian Star and Metrobank executed a Deed of Reconveyance dated April 20, 2009, in order to transfer the two mother titles in the name of Asian Star, as the true and legal holder of the title over the parcels of land where the Asian Star Building is situated. Thus, you would like to request for confirmation of your opinion that the aforementioned reconveyance of two (2) mother titles from Metrobank to Asian Star is exempt from capital gains tax, expanded withholding tax, value added tax and documentary stamp tax since the transfer is without consideration and that there is no true transfer of beneficial ownership. In reply, please be informed that since the Deed of Reconveyance above-mentioned is without consideration and is not in connection with a sale made to the condominium corporation, no income was generated and a fortiori , no creditable withholding tax is payable and collectible. The purpose of the conveyance to the condominium corporation is for the management of the project for the common benefit of the unit owners, pursuant to Section 10 of R.A. 4726, otherwise known as the Condominium Act. ITADaE Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale, to trustees or other persons without monetary consideration are not taxable". In the instant case, AAHI, the developer, is no longer the registered owner of the property, since Metrobank acquired ownership through a Deed of Dacion en Pago . However, pursuant to R.A. 4726 (Condominium Act), Metrobank is obligated to transfer ownership to the condominium corporation for the purpose of the latter's managing and holding title to all the common/limited common areas, facilities and equipment of the condominium project, including the land on which the condominium is located. Metrobank merely stepped into the shoes of the developer. In view thereof, this Office is of the opinion as it hereby holds that the aforesaid transaction is not subject to the donor's tax and creditable withholding tax prescribed by Section 2.57 (B) of Revenue Regulations No. 2-98, implementing Section 57 (B) in relation to Section 27 of the Tax Code of 1997. Neither is it subject to the documentary stamp tax imposed under Section 196 of the same Code. However, the notarial acknowledgement to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-305-2000 dated February 24, 2000) The transfer is also not subject to VAT since under Section 105 of the Tax Code of 1997, only a person who, in the course of trade or business sells, barters, exchanges, leases goods or properties, or who imports goods shall be subject to VAT imposed in Section 106 to 108 of the same Tax Code, as amended. Here, by conveying the common areas, facilities and equipment, including the land on which the condominium building stands, Metrobank, neither sells, barters, exchanges goods, properties nor renders services to be subject to VAT. 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