BIR Ruling No. 026-11

February 1, 2011 BIR RULING NO. 026-11 RA 7279; Sec. 196 of the Tax Code of 1997, as amended; BIR Ruling No. 398-93; BIR Ruling No. CMP-89-97; BIR Ruling No. SH-(071) 492-09; BIR Ruling No. SH-(042) 323-09 & BIR Ruling No. SH-(118) 733-09 PAMBAF Homeowners Association, Inc. No. 603 Panday Pira Street, Tondo, Manila Attention: Mr. Fernando L. Loteria Corporate President Gentlemen : This refers to your letter dated March 15, 2010 requesting, in effect, for clarification on whether or not the transfer of individual titles to the members-beneficiaries from the homeowners association pursuant to the Community Mortgage Program under Republic Act No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", is exempt from the payment of documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997, as amended. The facts as represented and as culled from the documents submitted are as follows: Under the Community Mortgage Program (CMP), the National Home Mortgage Finance Corporation (NHMFC) financed the sale of 166 lots from the Malabon Realty and Development Corporation in favor of the members of the PAMBAF Homeowners Association, Inc. ("PAMBAF"), an association composed of 166 members-beneficiaries duly registered with the Home Insurance and Guaranty Corporation (HIGC) and registered with the Bureau of Internal Revenue under OCN 1RC0000234323, with Taxpayers Identification No. 202-488-206-000. The titles of the 166 individualized or subdivided lots are registered under the name of PAMBAF. The members-beneficiaries were paying monthly amortizations to PAMBAF which in turn remit the same to the NHMFC pursuant to a Collection Agreement dated May 12, 1993 or the members-beneficiaries pay directly to NHMFC their monthly amortizations. When one's account is fully paid, the Transfer Certificate of Title (TCT) which is still in the name of PAMBAF would be released by the NHMFC to PAMBAF which in turn would execute a Deed of Absolute Sale in favor of the member-beneficiary. This Deed and other required documents were presented to the concerned revenue district office for the issuance of the Certificate Authorizing Registration (CAR) and Tax Clearance Certificate (TCL). IcTEaC On September 25, 1997, BIR Ruling No. CMP-89-97 was issued to PAMBAF stating among others that the transfer of the individual lots to the members-beneficiaries is exempt from the payment of the DST imposed under Section 196 of the Tax Code, as amended, as the transfer is made without any monetary consideration. You have been utilizing the above ruling for almost thirteen (13) years every time PAMBAF transfers titles of the individual lots to the members-beneficiaries. In February 2010, you presented to the revenue district office concerned four (4) Deeds of Absolute Sale executed by PAMBAF in favor of the following members-beneficiaries: (1) Charito M. Dela Cruz covering TCT No. 207904, (2) Carmencita M. Dela Cruz covering TCT No. 207905, (3) Victor P. Mercado covering TCT No. 207906, and (4) Fernando L. Loteria covering TCT No. 207898. The revenue district officer assigned contended that the foregoing transactions are subject to the documentary stamp tax as in the respective Deeds of Absolute Sale executed by PAMBAF in favor of the members-beneficiaries considerations were paid by the vendees to acquire the lots. It is your contention, however, that the amount stated as consideration in the corresponding Deed of Absolute Sale is not a consideration for the transfer of title of the property from PAMBAF to the individual members-beneficiaries but payment made by them to NHMFC for the release of the respective mortgaged titles which were made as collaterals for the financing arrangement made by the members of PAMBAF with NHMFC in the acquisition of the lots pursuant to the Community Mortgage Program, hence, this request for clarification. In support of your request, you submitted the following documents: 1) Written application for exemption filed with the Law Division dated March 15, 2010; 2) Photocopy of the Articles of Incorporation of PAMBAF dated December 18, 1989; 3) Photocopy of PAMBAF's Registration with the HIGC dated January 22, 1990; 4) Photocopy of By-Laws of PAMBAF adopted and approved on February 18, 1990; 5) Photocopy of the Collection Agreement executed by and between PAMBAF and NHMFC dated May 12, 1993; 6) Photocopy of PAMBAF's BIR Registration; 7) Photocopy of List of Members/Beneficiaries with their corresponding lots, submitted to the Housing and Land Use Regulatory Board (HLURB) on August 11, 2004; 8) Photocopies of the Deeds of Absolute Sale covering the lots occupied by the following members-beneficiaries: (1) Charito M. Dela Cruz covering TCT No. 207904, (2) Carmencita M. Dela Cruz covering TCT No. 207905, (3) Victor P. Mercado covering TCT No. 207906, and (4) Fernando L. Loteria covering TCT No. 207898; AHDacC 9) Certified True Copies of TCT Nos. 207904, 207905, 207906 & 207898; 10) Photocopy of BIR Ruling No. CMP 89-97 dated September 25, 1997; and 11) Photocopy of ONETT Computation Sheet. In reply thereto, please be informed that on several occasions this Office ruled that the transfer of titles of individual lots in favor of the members-beneficiaries from the homeowners association which is organized solely for the purpose of acquiring a tract or parcel of land to be subdivided and distributed to the members-beneficiaries pursuant to the concept of community ownership under the CMP, a financing program of the NHMFC, is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, the transaction being a mere formality in transferring ownership to the members-beneficiaries who are the real buyers of the property covered by the CMP. [BIR Ruling Nos. CMP-89-97 dated September 25, 1997, SH-(071) 492-09 dated August 3, 2009, SH-(042) 323-09 dated May 20, 2009 and SH-(118) 733-09 dated November 24, 2009] As ruled by this Office in BIR Ruling No. CMP-89-97 dated September 25, 1997, the deeds executed by PAMBAF to effect transfer of titles of the individual lots in favor of the members-beneficiaries, in accordance with the CMP, are not subject to the DST imposed under Section 196 of the Tax Code, as amended, the same being made without consideration. As above argued, the amount stated as consideration in the corresponding Deed of Absolute Sale executed by PAMBAF is not a consideration for the transfer of title of the property from PAMBAF to the individual members-beneficiaries but payment made by them to NHMFC for the release of the respective mortgaged titles which were made as collaterals for the financing arrangement made by the members of PAMBAF with NHMFC in the acquisition of the lots pursuant to the CMP. Based on the foregoing, this Office hereby reiterates its ruling that the deeds executed by PAMBAF to effect transfer of titles of the individual lots in favor of the members-beneficiaries, without any monetary consideration, are not subject to the DST imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment to said deeds are subject to the documentary stamp tax in the amount of P15.00 only pursuant to Section 188 of the Tax Code of 1997, as amended. (BIR Ruling No. 398-93 dated October 11, 1993) Finally, the Certificate Authorizing Registration (CAR) shall only be issued after the submission of the requirements provided under Revenue Memorandum Order (RMO) No. 15-2003 and after verification by the Revenue District Officer (RDO) concerned that the selling price per lot does not exceed P150,000.00, the threshold prevailing at the time of acquisition of the subject lots covered by the CMP, in accordance with Revenue Regulations No. 9-93 implementing R.A. No. 7279. The acquisition of the subject lots covered by the CMP apparently took place sometime in 1993 as the Collection Agreement with the NHMFC was executed during the said year. 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. IaEACT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue