United Methodist Church of the Philippines

September 26, 2008 BIR RULING [DA-(DT-009) 261-08] 101 (A) (3); DA-164-98; DA-044-02; DA-622-99 United Methodist Church of the Philippines The Way United Methodist Church Philippines Annual Conference East (PACE) No. 58 Corolla St., Village East Executive Homes Felix Avenue, Cainta, Rizal Attention: Atty. Alicia L. Tomacruz Chairman, Board of Trustees, PACE Gentlemen : This refers to your letter dated July 30, 2008 requesting a ruling on the tax consequence on the following transaction, viz. : 1) On the transfer of open spaces in a residential subdivision by the developer, Prime East Properties, Inc. (PEP), formerly Antipolo Properties, Inc. (API), to Village East Executive Homeowners Association, Inc. (VEHAI); and 2) The subsequent donation by VEHAI of a portion of the subdivision's open space to "The Way United Methodist Church" (TWUMC). The facts as represented are as follows: PACE is a non-stock, religious corporation affiliated with the Philippine Central Conference of the Methodist Church, for the purpose of, among others, administering the temporalities and manage its properties, estates and revenues; to hold such properties in trust for the use, purposes, behalf and benefit of the said Annual Conference for its church, charitable and benevolent purposes, and to establish and maintain non-stock and non-profit schools, hospitals and medical clinics in expressing its Christian faith and worship and its Christian mission of service to fellowmen. PACE was duly incorporated and registered with the Securities and Exchange Commission (SEC) on December 16, 1993. TWUMC is a local church and part of PACE. PEP, on the other hand, is the owner-developer of Village East Executive Homes, a housing subdivision project located along Felix Avenue, Cainta, Rizal. PEP donated the open spaces of Village East Executive Homes, consisting of 19 lots, to VEHAI under a Deed of Donation executed on May 3, 2003, in accordance with Presidential Decree (P.D.) No. 1216, requiring subdivision owners to provide roads, alleys, sidewalks and reserve open spaces for parks, playgrounds, recreational uses, schools, places of worship, hospitals, health centers and other similar facilities and amenities. The corresponding titles (which are still under the name of PEP), lot numbers and areas, in square meters, of the above open spaces are as follows: DEICTS TCT No. Lot No. Blk. No. Area (sq.m.) 72678 23 28 1,795 94213 51 36 1,716 94214 - 103 2,069 94215 - 52 1,467 94217 53 36 3,265 94364 - 63 2,018 94470 1 70 948 94575 11 75 1,644 94867 17 87 1,477 95082 2 102 2,293 523687 20 20 5,210 525340 - 41 7,980 531564 12 35 995 531563 16 36 1,338 555307 3 38 2,744 118070 19 105 3,282 118422 12 122 897 193041 13 2 3,854 193055 14 3 7,724 VEHAI subsequently donated a 1,000 sq. m. portion of the open space covered by TCT No. 689049 (formerly TCT No. 525340) to TWUMC for purposes of constructing a church building and a youth development center. For this purpose, VEHAI executed a Deed of Donation in favor of TWUMC notarized on July 1, 2008. In reply, please be informed that since the conveyance by PEP of the open spaces of Village East Executive Homes to the homeowners association, VEHAI, is made pursuant to P.D. 1216, a law requiring owners of subdivision projects to provide roads, alleys, sidewalks and reserve open spaces for parks, playgrounds, recreational uses, schools, places of worship, hospitals, health centers and other similar facilities and amenities to the residential subdivisions developed, and since the conveyance was through a donation thereby made without any monetary consideration and is not in connection with a sale made to the association, no income was generated and a fortiori, no income tax or creditable withholding tax is payable and collectible. 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-164-98 dated April 22, 1998) Moreover, since the purpose of the conveyance to the homeowners association of the open spaces and other facilities of the subdivision is for the management, common benefit and enjoyment of the homeowners who are, in reality, the true owners of the said open spaces and facilities as they bought the subdivision lots with the foregoing amenities in consideration, and that the same is required by law, no donative intent therefore existed in the said transfer thereby negating the imposition of the donor's tax as provided for under Section 98 of the Tax Code of 1997, as amended. On the other hand, inasmuch as the donation by VEHAI of the 1,000 sq. m. portion of TCT No. (525340) 689049 was made to TWUMC, a non-stock, non-profit religious and charitable corporation, for the purpose of constructing thereat a church building and youth development center, the aforementioned donation therefore is exempt from the payment of the donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of the said gift shall be used by the donee for administration purposes. The Register of Deeds shall, however, annotate this condition at the back of the Transfer Certificate of Title because failure to comply with the said condition shall be a ground for the revocation of the donation pursuant to Article 764 of the New Civil Code. (BIR Ruling Nos. DA-044-02 dated March 12, 2002 and DA-622-99 dated November 3, 1999) Moreover, the aforesaid Deed of Donation is not subject to documentary stamp tax. However, the acknowledgement on said deed is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997, as amended. (BIR Ruling DA-481-98 dated November 9, 1998) 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. CADHcI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service