City Legal Office

July 5, 2010 BIR RULING [DA-(DT-015) 115-10] Sec. 101 (A) (2); 196; BIR Ruling No. 064-97; BIR Ruling No. 003-01; BIR Ruling No. DA-028-98; BIR Ruling No. DA(DT-070)768-09 City Legal Office Sta. Elena, Marikina City Attention: Atty. Nancy Villanueva Teylan City Attorney Gentlemen : This refers to your letter dated March 4, 2010 requesting for a ruling that the donation of a parcel of land by Medina Food Industries, Inc. (MFII) in favor of the City Government of Marikina is exempt from donor's tax and documentary stamp tax. It is represented that MFII (TIN 001-901-577-000) is a corporation duly organized and existing under Philippine laws. It is the registered owner of a certain parcel of land covered by Transfer Certificate of Title (TCT) No. 416423 located at Brgy. Concepcion I, Marikina City with an area of 435 sq.m. The City Government of Marikina (TIN 000-480-288-000), on the other hand, is a local government unit duly organized and existing under the laws of the Philippines. MFII offered to donate said parcel of land to the City Government of Marikina for the construction of a new road for more speedy delivery of basic services and to promote the general welfare of the constituents of the City Government of Marikina, as well as the homeowners of the Loyola Grand Villas where the subject realty is located. The latter through its Honorable City Mayor Ma. Lourdes C. Fernando has considered accepting the offer of MFII and that the Sangguniang Panlungsod in session duly assembled has authorized their Mayor to accept and sign the deed of donation per Resolution No. 251 Series of 2008 dated October 20, 2008. Subsequently, on November 5, 2008 a Deed of Donation was executed by MFII conveying the subject property in favor of the City Government of Marikina. In reply, please be informed that gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government is exempt from the payment of the donor's tax pursuant to Section 101 (A) (2) or (B) (1) of the Tax Code of 1997, as amended. (BIR Ruling No. 064-97 dated May 15, 1997) DTISaH Inasmuch as the City Government of Marikina is a political subdivision of the government, any donation to it is exempt from the payment of donor's tax pursuant to the above provisions of the Tax Code as amended. In case of donation of real property, the Register of Deeds shall annotate this condition at the back of the TCT 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. Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the Tax Code, provides that conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable. Thus, the deed of donation is as well not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. (BIR Ruling No. 003-2001 dated February 5, 2001 and BIR Ruling No. DA-028-98 dated January 29, 1998) If the donor is a value-added tax (VAT) registered person and the donation is an ordinary asset, the donation is subject to VAT pursuant to Section 4.106-7 of Revenue Regulations (RR) No. 16-2005, the same being considered a transaction deemed sale, but the input VAT attributed to the VAT portion of the cost of the donation should be deducted from the accumulated input VAT of the donor. If the donor is not a VAT registered person, the donation is exempt from VAT. However, if the same property acquired by gift is subsequently conveyed by way of sale or exchange, the sale will be subject to corporate income tax on the gain realized which is determined by deducting from the gross selling price the historical cost or the adjusted basis thereof, as it would be in the hands of the donor, pursuant to Section 27 in relation to Section 101, both of the Tax Code of 1997, as amended, and consequently to the creditable expanded withholding tax under Section 2.57.2 of RR No. 2-98, as amended. If the city government donates the same property donated to it to a non-exempt donee, it shall be liable for donor's tax pursuant to Section 98 of the Tax Code of 1997, as amended. (BIR Ruling No. DA(DT-070)768-09 dated December 10, 2009) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. cEHSTC Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service