Ms. Marissa L. Peñalosa

December 10, 2009 BIR RULING [DA-(C-311) 763-09] 031-99; DA171-07; DA648-07; DA138-07; DA029-08 Ms. Marissa L. Pealosa No. 53 Dr. Sixto Antonio Avenue Rosario, Pasig City Madam : This refers to your letter dated December 8, 2008 stating that Mr. Ramon Villavicencio (Mr. Villavicencio) subscribed and paid in full twenty four thousand (24,000) shares of stock of TWA, Inc., a corporation organized and existing under the laws of the Philippines and duly registered with the Securities and Exchange Commission (SEC) on November 22, 1994 bearing SEC Registration No. ASO94-10621, covered by Certificate of Stock No. 03; that upon instruction of Mr. Villavicencio, as the Principal, the said shares of stock were registered in the name of Ms. Marissa L. Pealosa (Ms. Pealosa) on condition that the latter will later on transfer said shares back to Mr. Villavicencio without any consideration with the intent being that Ms. Pealosa shall hold the said shares together with all its earnings and increments for the benefit of and in trust for Mr. Villavicencio who has previously advanced funds to the former; and that in 2001, a Declaration of Trust was executed by Ms. Pealosa, as Trustee, and Mr. Villavicencio, as Principal, whereby the former confirmed and acknowledged that she is merely acting as Trustee for the principal for the purpose of entering into a Subscription Agreement with TWA, Inc. and holding the Certificate of Stock No. 03 for and in behalf and upon instruction of the Principal and that she holds no interest or claim to the said shares. Based on the foregoing representation, you now request for confirmation of your opinion that 1. The transfer of shares of stock in TWA, Inc. by its Trustee in favor of the Principal is not subject to capital gains tax and the corresponding documentary stamp tax; and 2. The transfer of said shares without consideration by the Trustee in favor of the Principal is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. In reply thereto, please be informed that your opinion is hereby confirmed as follows 1. Section 24 (C) of the Tax Code of 1997 generally imposes a final tax at the rates of 5% and 10% 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 . . . . aHcACT Prescinding from the above-cited provisions, it is clear that the rule does not apply in the instant case considering that there is no sale, barter or exchange of the 24,000 shares of stock in TWA, Inc. by Ms. Pealosa, as Trustee, to Mr. Villavicencio, as Principal, and real owner of said shares. Likewise, inasmuch as the said transfer is without consideration the same is not subject to capital gains tax imposed under Section 24 (C) of the Tax Code of 1997 and to the corresponding documentary stamp tax prescribed in Section 175 of the said Code, as amended by Republic Act (RA) No. 9243. However, the notarial acknowledgment is subject to the P15.00 documentary stamp tax prescribed in Section 188, supra . The above principle is not without authority, this is justified by the following ratiocination as held in BIR Ruling No. 031-99 dated March 19, 1999 ". . . 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." This was later reiterated in BIR Ruling No. DA291-08 dated October 14, 2008, where it was held that ". . . since UOBL is the real owner of the shares which UOBP held as a trustee. Accordingly, the transfer of the shares from the trustee, UOBP, to the Trustor, UOBL, the real owner thereof, without monetary consideration and by virtue of a 'Revocation of Trust and Deed of Assignment', is not subject to capital gains tax." 2. Well settled in our jurisprudence is the fact that the essential elements of a valid donation are: (1) the reduction of the patrimony of the donor; and (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality ( animus donandi ) It is undisputed that there is no intention on the part of Ms. Pealosa to donate to Mr. Villavicencio the shares of stock in TWA, Inc. which the former held in trust for the latter. Thus, the aforesaid transfer/assignment of said shares will not be subject to gift tax since there is no intention to donate, and the transaction is merely to be treated as a continuation and confirmation of ownership in favor of the ultimate and real owner of the said shares. ASHICc 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