Mr. Ernesto Chuakaw

December 17, 2009 BIR RULING [DA-(C-322) 789-09] DA056-03; DA103-07 Mr. Ernesto Chuakaw 530 Sto. Cristo Binondo, Manila Sir : This refers to your letter dated November 3, 2009 stating that you are the absolute and registered owner of a parcel of land with an aggregate area of 2,089.80 square meters located M. de Binondo, Sto. Cristo, San Nicolas, Manila, covered by TCT No. 243749 issued by the Registry of Deeds for Quezon City; that you together with a group of individuals developed the aforesaid property into a residential condominium project known as "The Ritzville Residence" in accordance with the provisions of Republic Act (RA) No. 4726, otherwise known as the Condominium Act, as amended; that you will engage the services of a Project Manager to gather a sufficient number of investors (Clients) and to manage and administer the development of the Project; that you will execute a Memorandum of Agreement (Agreement) which will grant the latter the right and option to require the former to participate as an investor in the Project by contributing the Subject Land and in return will acquire and be allocated a specific number of units in the Project; that the Agreement may be exercised by the Project Manager at anytime within twelve (12) months from the issuance of a favourable ruling from the BIR; that upon the exercise of the option by the Project Manager, which will take place when it has gathered a sufficient number of investors, you will contribute the Subject Land to the Project; that to begin the Project, each client will enter into a Contract to Manage and Execute the Construction of "The Ritzville Residence"; that in the said Contract, each Client will undertake to collectively develop the project and to put up its respective construction funding contributions for the same; that in return for such participation and as part of its interest in the project, each Client will be assigned specific condominium units in the Project (Condominium Units); that in addition, each Client will have a proportionate undivided interest in the common areas of the project, which common areas include the Subject Land (the Common Areas); that under the terms of the Contract, each Client will agree that prior to the actual division of the Project into individual units, their respective interests in the Project would consist of a pro-indiviso, pro-rata share, held collectively with the other Clients; that realizing, however, that it would be cumbersome and administratively difficult for all Clients to be named as owners of the Subject Land and the Project, various trust agreements will be executed by the Clients, as Trustors, and Trustee Bank, for the purpose of allowing the Trustee to hold title to the Subject Land and the Project; that at the time of the execution of the Trust Agreements by the Trustors, their respective construction funding payments will be remitted to the Trustee as and when necessary with the instructions for the Trustee to hold and disburse the funds for the development of the Project; that as part of its functions, the Trustee shall cooperate with the Project Manager, in the course of the Project's development, particularly in effecting the condominiumization of the project and obtaining necessary registrations for the same and the individual condominium units and the common areas; and that the terms of the Trust Agreement, upon completion of the Project, by the Trustee is to execute the Deeds of Conveying in favour of the Clients their respective condominium units and the common areas in favour of a condominium corporation. Based on the foregoing representations, you now request for confirmation of your opinion that 1. The conveyance of the condominium units and parking units by the Trustee to the individual Trustors is not subject to any tax imposed under the Tax Code of 1997, including value-added tax and documentary stamp tax on the deeds of sale and conveyance of real property imposed under Section 196, ibid. 2. The conveyance of the common areas of the Project by the Trustees to the Condominium Corporation is not subject to any tax and the documentary stamp tax imposed under Section 196 of the said Code. In reply thereto, please be informed that your opinion is hereby confirmed as follows 1. The conveyance of the condominium units and parking units by the Trustee to the individual Trustors is without monetary consideration and does not have the effect of a sale, exchange or disposition and is merely confirmation of title in favour of the beneficial owners thereof. CTSAaH Accordingly, the transfer of the aforesaid properties is not subject to the creditable withholding tax under Revenue Regulations No. 2-98, as amended, or capital gains tax under Section 24 (D) (1), nor to the 1.5% documentary stamp tax under Section 196 both of the Tax Code of 1997 but is subject to the documentary stamp tax of P15.00 provided in Section 188, supra . Since the conveyance is not a sale, barter or exchange of goods or properties, the same should not likewise be subject to the 12% value-added tax (VAT) imposed under Section 106 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-056-03 dated February 24, 2003) 2. The conveyance of the common areas of the Project by the Trustee in favour of the condominium corporation being without monetary consideration and not in connection with a sale made to the condominium corporation is not subject to income tax and/or creditable withholding tax. Since the said conveyance is not a sale, barter or exchange of goods or properties, the same is not likewise subject to the 12% VAT imposed under Section 106 of the Tax Code of 1997, as amended, neither will it be subject to the documentary stamp tax on sale or conveyance of real property imposed under Section 196, supra . However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188, ibid. (BIR Ruling No. DA-056-03 dated February 24, 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service