Ms. Amelia Gonzales Segarra

April 16, 2009 BIR RULING [DA-(I-012) 190-09] DA 396-03 Ms. Amelia Gonzales Segarra Tagaytay City Madam : This refers to your letter dated February 11, 2009 stating that Ms. Amelia Gonzales Segarra (Principal) purchased a parcel of land located in Tagaytay and subdivided the said property into lots C, D, E and F; that however, upon her instruction as the Principal, the said lots were registered in the names of Armin Segarra and Amelito Segarra, as the Trustees, on condition that upon demand by the Principal, the Trustees will transfer, cede and/or convey Lots E & F, Psd-04-044062 in favor of their sister, Arleen May Segarra-Guevara (Beneficiary); that upon instruction of the Principal, the Trustees, Armin and Amelito Segarra and the Beneficiary, Arleen Segarra-Guevara executed a Declaration of Trust, whereby the Trustees transferred, ceded and/or conveyed in favor of Ms. Arleen May Segarra-Guevara, Lots E & F without any consideration at all while Lots C and D were respectively retained by Armin and Amelito Segarra, respectively. Based on the foregoing representations, you now request confirmation of your opinion that 1. The transfer described as Lots E & F, Psd-04-044062, without consideration, by the Trustees in favor of Arleen May Segarra-Guevara is neither subject to capital gains tax imposed under the Tax Code of 1997 nor to the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended; 2. The transfer of the said properties in favor of Arleen May Segarra-Guevara by the Trustees shall not be subject to the 12% VAT because said properties are not held by the trustees primarily for sale to customers or for lease in the ordinary course of business, considering that they only hold the same in trust for the beneficiary as per instruction of the Principal, Amelia G. Segarra; and 3. The transfer of the said properties without consideration by the Trustees in favor of the beneficiary shall not be subject to donor's tax imposed under Section 98 of the Tax Code of 1997. In reply thereto, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gains presumed to have been realized on the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts . . . . In the instant case, an implied trust is deemed created by law. The transfer of the aforesaid Lots E & F in the names of Armin and Amelito Segarra, as Trustees, for and in behalf of the beneficiary, Arleen May Segarra-Guevara, without monetary consideration by way of a Declaration of Trust is not subject to capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. The above principle is not without authority, this Office in BIR Ruling No. DA100-95 dated March 9, 1995 ruled that " . . . there is no actual transfer, sale or exchange of ownership over the aforementioned property considering that the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes, in their capacity as trustee of the property, transferred the same in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga, as the trustor-beneficiaries thereof. Accordingly, the said transfer is not subject to the 5% capital gains tax imposed under Section 21(a) of the Tax Code, as amended. Likewise, the above transaction is not subject to gift tax, since there is no donative intent under the above circumstances. . . ." cEHITA This was likewise reiterated in BIR Ruling No. DA396-03 dated November 4, 2003, where this Office ruled that "In view of the foregoing, the aforementioned real properties covered by TCT Nos. 152668 and 152669 may now be registered by the Register of deeds concerned in the name of Roberto Antonio C. Romualdez, Francisco Xavier C. Romualdez, Rafael Maria C. Romualdez, Juan Martin C. Romualdez and Anna Margarita C. Romualdez, as the true and beneficial owners of the aforesaid properties." This Office justified the above-mentioned ruling with the following ratiocination: ". . . The transfer of the aforesaid properties in the name of Salvador L. Carlos, as Trustee, for and in behalf of the beneficiaries, Roberto Antonio C. Romualdez, Francisco Xavier C. Romualdez, Rafael Maria C. Romualdez, Juan Martin C. Romualdez and Anna Margarita C. Romualdez, without monetary consideration by way of a Deed of Reconveyance is not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. ScaEIT "Moreover, Section 185 of Regulations No. 26 provides that conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Assignment of Real Properties held in trust in favor of the beneficiaries to effect the intent of the trust over the above-mentioned properties to be executed by Salvador L. Carlos in favor of the above-named beneficiaries, as the true and beneficial owners, is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but the acknowledgment thereof is subject to the P15.00 documentary stamp tax prescribed in Section 188 of the said Code. (BIR Ruling No. DA509-98 dated November 11, 1998) "Finally, the above transaction is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997 as there is no intention to donate on the part of the parties." WHEREFORE, in view of the foregoing, this Office hereby confirmed your opinion that 1. The transfer described as Lots E & F, Psd-04-044062, without consideration, by the Trustees in favor of Arleen May Segarra-Guevara is neither subject to capital gains tax imposed under the Tax Code of 1997 nor to the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended; TECIHD 2. The transfer of the said properties in favor of Arleen May Segarra-Guevara by the Trustees is not subject to the 12% VAT because said properties are not held by the trustees primarily for sale to customers or for lease in the ordinary course of business, considering that they only hold the same in trust for the beneficiary as per instruction of the Principal, Amelia G. Segarra; and 3. The transfer of the said properties without consideration by the Trustees in favor of the beneficiary is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. 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. CSDcTA Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service