Avida Land Corporation

September 15, 2009 BIR RULING [DA-(DT-052) 542-09] Secs. 101 (A) (2), 105 & 196; DA-302-03, DA-135-01, DA-095-08, DA-230-04 & DA-576-06 Avida Land Corporation 4/F, Makati Stock Exchange Building Ayala Avenue, Makati City Attention: Attys. Mildo C. Sison & Elner A. Reyes Gentlemen : This refers to your letter dated July 25, 2009 requesting confirmation of your opinion that the donation of real property made by Laguna Properties Holdings Inc. , (LPHI, now Avida Land Corporation) to Cabanatuan City Water District (CCWD) is exempt from Donor's Tax and Documentary Stamp Tax (DST) pursuant to Section 101 in relation to Section 196 of the National Internal Revenue Code of 1997 (Tax Code), as amended. DSETcC It is represented that LPHI was a domestic corporation duly organized and existing under Philippine laws with principal office at the 4th Floor, Makati Stock Exchange Building, Ayala Avenue, Makati City. On the other hand, CCWD is a government entity duly organized and existing under and by virtue of Presidential Decree (P.D.) No. 198, as amended, with office address at 229 CVR, Brgy. Dicarma, Cabanatuan City. As a government entity, CCWD is in-charge with management and operation of local water district in Cabanatuan City and the same is not conducted for profit. LPHI was engaged in the development of residential and commercial establishments in Cabanatuan City. It owned a certain lot in Sta. Arcadia Estates with an area of three hundred (300) square meters which is an ideal site for the installation of the water facilities to be operated by CCWD. For and in consideration of LPHI's pure liberality and generosity, it donated said lot to CCWD through a Deed of Donation executed on July 21, 2003. The lot donated to CCWD is more particularly described as follows: "A certain lot in Sta. Arcadia Estates under Lot 18, Block 4 of the consolidated subdivision plan situated in Barrio of Sta. Arcadia, City of Cabanatuan City, Province of Nueva Ecija, containing an area of Three Hundred (300) square meters, more or less, and covered by Transfer of Certificate of Title (TCT) No. T-109691 issued by the Register of Deeds of Cabanatuan City on January 21, 2004." In reply, please be informed that Section 101 (A) (2) of the Tax Code of 1997, as amended, provides as follows: "SEC. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this Chapter: (A) In the Case of Gifts Made by a Resident. xxx xxx xxx; (2) 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; and . . .". (Emphasis supplied) Inasmuch as the donee, CCWD, is a government entity duly organized and existing under and by virtue of P.D. No. 198, as amended, the donation by LPHI in its favor of the above parcel of land covered by TCT No. T-109691 of the Register of Deeds of Cabanatuan City, to be utilized for the installation of the water facilities to be operated by CCWD, is exempt from the payment of donor's tax pursuant to Section 101 (A) (2) of the Tax Code of 1997, as amended. (BIR Ruling Nos. DA-302-03, dated September 16, 2003, DA-135-2001 dated August 8, 2001 & DA-095-08, dated February 14, 2008) SHIcDT 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, as amended, and consequently to the creditable expanded withholding tax under Section 2.57.2 of Revenue Regulations (RR) No. 2-98, as amended. If the donee donates the same property donated to it to a non-exempt individual or entity, the donee shall be liable for donor's tax pursuant to Section 98 of the Tax Code of 1997, as amended. Moreover, the Deed of Donation executed by LPHI in favor of CCWD is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, there being no monetary consideration involved on the said transfer and the same was made based on pure liberality and generosity of LPHI to CCWD. However, the acknowledgment on the said Deed of Donation is subject to the DST of P15.00 imposed under Section 188 of the Tax Code, as amended. (BIR Ruling No. DA-095-08, dated February 14, 2008) On the other hand, Section 105 of the Tax Code of 1997, as amended provides that any person who, in the ordinary course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Section 106 and 108 of the same Code. However, since the disposition of the subject parcel of land by LPHI is not made in the course of its trade or business, the aforesaid donation, therefore, is not subject to the 12% VAT. (BIR Ruling No. DA-230-04 dated May 5, 2004 and DA-576-06 dated September 22, 2006). 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service