Malcolm Law Offices

December 15, 2009 BIR RULING [DA-(DT-073) 781-09] RA No. 6657; DA-463-07; DA-030-02; DA-198-99; 100-98; UN-038-94 Malcolm Law Offices 2/F Jose Cojuangco & Sons Bldg. 119 Dela Rosa cor. Palanca Sts. Legaspi Village, Makati City Attention: Atty. Donald V. Diaz Gentlemen : This refers to your letter dated December 9, 2008 requesting for a confirmation of opinion that the transfer by Hacienda Luisita Incorporated (HLI) of its real properties in favor of its qualified farmer-beneficiaries in accordance with a Memorandum of Agreement (MOA) dated May 11, 1989 and in pursuance to the Comprehensive Agrarian Reform Law (CARL) or Republic Act (RA) No. 6657 is exempt from all kinds of taxes. It is represented that HLI is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) whose principal office is located at the Municipality of Tarlac, Province of Tarlac. It is the owner of at least twenty (20) parcels of land with an area of approximately 194.588 hectares (ha.) and is grouped into ten (10) separate areas. The aforesaid 10 groups of lands are all located inside Hacienda Luisita in Tarlac Province. Sometime on May 11, 1989, HLI and the qualified farmer-beneficiaries entered into a MOA that was attested to by the Secretary of Department of Agrarian Reform (DAR). Among the MOA's provision states that HLI's above-mentioned 20 parcels of land are to be distributed free of charge to at least 5,700 qualified farmer-beneficiaries that they will utilize as their homelots. As clearly stated in paragraphs 6 and 7 of said MOA: "6. In addition, the SECOND PARTY shall within a reasonable time subdivide and allocate for free and without charge among the qualified family-beneficiaries residing in the place where the agricultural land is situated, residential or homelots of not more than 240 sq.m. each, with each family beneficiary being assured of receiving and owning a homelot in the barangay where it actually resides on the date of the execution of this Agreement. cACEaI 7. This Agreement is entered into by the parties herein in the spirit of the Comprehensive Agrarian Reform Program (C.A.R.P.) of the government and with the supervision of the Department of Agrarian Reform, with the end in view of improving the lot of the qualified beneficiaries of the stock distribution plan and obtaining for them greater benefits." Name of Area (ha.) Area Approximate TCT Nos. Barangay (sq.m.) homelots Asturias 10.9479 109,479 312 236744, 236748 Balete 23.4346 234,346 791 236750, 240192 Bantog 10.3331 103,331 335 236749 Cut-Cut 21.2449 212,449 540 236745 Luisita 38.6628 386,628 1,091 241182, 236746, 240194 Motrico 19.2413 192,413 562 236743, 240204, 240206 Pando 16.6805 166,805 513 236753, 240202 Pasajes 17.3205 173,205 494 236752, 240198 San Sebastian 20.4481 204,481 635 236751, 240200 Texas 16.2743 162,743 479 236747, 240196 TOTAL 194.588 1,945,880 5,752 ====== ======= ===== The conveyance of the parcels of land was made in compliance with the MOA and involved no valuable consideration. HLI received no payment whatsoever for the conveyance of the parcels of land and conversely, the qualified farmer-beneficiaries likewise paid nothing for acquiring those parcels of land. To date, HLI has finished subdividing the homelots to qualified farmer-beneficiaries and is now in the process of transferring the title in the name of the respective qualified farmer-beneficiary. It is your belief that the conveyance squarely falls under the very purpose of emancipation of tenants under the CARP as envisioned under the CARL. It also fulfills the mandate of DAR to acquire and distribute lands to qualified tenant and farm workers. In reply thereto, please be informed that Section 66 of RA No. 6657 provides, viz. : "Sec. 66. Exemption from taxes and Fees of Land Transfers. Transactions under this Act [RA 6657] involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof; Provided, that all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled." Thus, in BIR Ruling No. DA-030-02 dated March 7, 2002, this Office ruled that aCcHEI "There can be no uncertainty that transactions involving transfer of ownership of land covered by CARP are exempt from capital gains tax and also from 'other taxes'. (BIR Ruling No. DA-095-98 dated March 19, 1998) In other words, the proceeds to be derived by the landowner from the sale of the land covered by CARP is exempt from capital gains tax and also from documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Conversely, donation of the above-mentioned parcel of land to the tenant-beneficiaries of the comprehensive agrarian reform program is therefore exempt from all taxes and fees being imposed in connection therewith, more specifically from donor's tax. Corollarily, in BIR Ruling No. 100-98 dated June 29, 2000, the same Office ruled that "Accordingly, pursuant to Section 66 of R.A. No. 6657, in relation to Section 65 of the Act, donations of homelots, including replacement houses built on the relocated site, . . . in favor of the tenants/farm workers are exempt from donor's tax imposed under then Section 91 of the Tax Code, as amended (now Section 98 of the Tax Code of 1997)" Such being the case, this Office holds that the donation by HLI of the above-described parcels of land covered by CARP in favor of the qualified farmer-beneficiaries is exempt from donor's tax. 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