Zenaida O. Balmas Law Office

December 10, 2009 BIR RULING [DA-(DT-070) 768-09] 101 (A) (3); DA (DT-017) 340-08; DA-028-98 Zenaida O. Balmas Law Office Rm. 303 JRM Bldg., No. 9 Sct. Borromeo South Triangle, Quezon City Attention: Atty. Zenaida O. Balmas Gentlemen : This refers to your letter dated November 23, 2009 requesting in effect, for a ruling that the donation of several parcels of land in favor of Mission Services Foundation, Incorporated (MSFI) is exempt from donor's tax. It is represented that MSFI is a religious corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 37305 dated January 21, 1969; and that the main purpose for which it was formed is to seek the everlasting security and well-being of humanity. On September 8, 2009, Annie May Ho Yuen and Andrew G. Yuen executed a Deed of Donation in favor of the MSFI over a parcel of land covered by Transfer Certificate of Title (TCT) No. N-201886 situated in Barangay Paang Bundok, Quezon City containing an area of Two Hundred Forty (240) square meters. Likewise, Mae L. Ramos, married to Edmund Ramos also executed a Deed of Donation, in favor of MSFI over two (2) parcels of land covered by TCT Nos. N-279856 and N-279835 both situated in Barangay North Fairview, Quezon City and each containing an area of Three Hundred (300) square meters. In reply, please be informed that gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization is exempt from the payment of the donor's tax pursuant to Section 101 (A) (3) and (B) (2) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes. SDEITC Inasmuch as MSFI is an organization created for religious purposes, any donation to it is exempt from the payment of donor's tax pursuant to the above provisions of the Tax Code subject to the condition that not more than thirty percent (30%) of said gift shall be used by the donee for administration purposes. In case of donation of real property, the Register of Deeds shall annotate this condition at the back of the TCTs 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 deeds of donation are 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. 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 properties acquired by gift are 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 foundation donates the same properties donated to it to a non-exempt donee, MSFI shall be liable for donor's tax pursuant to Section 98 of the Tax Code of 1997, as amended. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service