Consolidation of Title of Property Surrendered as Ill-gotten Wealth Exempt from Capital Gains Tax and Documentary Stamp Tax

August 7, 2002 BIR RULING NO. 030-02 000-00 Presidential Commission on Good Government Republic of the Philippines IRC Building, #82 EDSA Mandaluyong City Attention: Comm. Haydee B. Yorac Chairperson Gentlemen : This refers to your letter dated May 6, 2002 on your request for a ruling on the propriety of imposing capital gains tax and documentary stamp tax on the consolidation of title of the property surrendered as ill-gotten wealth in favor of the Republic of the Philippines. The facts, as represented, are as follows: In 1986, Jose Y. Campos surrendered, among others, the Independent Reality Corporation (IRC for brevity) and its properties to the Republic of the Philippines through the Presidential Commission on Good Government (PCGG for brevity) as part of the Marcos ill-gotten wealth. Since then, the corporation and its properties have been under the control of the Republic. On April 2, 2002, the IRC and the PCGG consolidated the title of the Republic over a parcel of land and the building in such land covered by TCT No. 390163 and registered in the name of IRC. Your good Office now requests whether capital gains tax and documentary stamp tax should be imposed on such transfer and consolidation. In reply, please be informed that the Department of Justice, in DOJ OPINION NO. 108, s. 1987 dated October 16, 1987, has already rendered an opinion on the same matter, which this Office fully subscribes to and is hereby reproduced as follows: "This refers to your request for opinion on whether the Republic of the Philippines is exempt from payment of capital gains tax, transfer tax, real property tax and other fees in connection with the transfer in its favor of several real properties by Independent Realty Corporation (IRC). Said real properties were voluntarily surrendered to the Presidential Commission on Good Government (PCGG) by Jose Yao Campos being part of Marcos ill-gotten wealth and which in turn were formally transferred to the Department of Agrarian Reform (DAR) by PCGG. The accompanying documents disclose that Jose Y. Campos is the principal stockholder of Independent Realty Corporation (IRC); that he voluntarily surrendered in favor of the Philippine Government, the title and ownership of IRC and all its subsidiaries; that thereafter on April 1, 1986, the Philippine Government, through the PCGG, formalized the sequestration of the said corporation and all its subsidiaries under the control of the PCGG; that in pursuance of the aforestated sequestration order, the Board of Directors of IRC passed a resolution authorizing the transfer of all properties in the name of IRC and its subsidiaries to the Republic of the Philippines, that the PCGG and DAR entered into a Memorandum of Agreement covering said surrendered properties; and that since IRC is deemed to be now owned by the Philippine Government, IRC executed a Deed of Transfer transferring, conveying, and assigning all its rights, interest and titles to all the properties listed in Annex "A" of said document in favor of the Republic of the Philippines. You contend that since the Republic of the Philippines is the owner of the real properties in question, the registration of the same should be exempt from the payment of capital gains tax, real property tax, transfer tax, and other fees being required by the Register of Deeds of Laguna and Cavite. We find your contention tenable. Taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government. The general rule is that, independently of constitution or statute, property belonging to the state or a political division thereof is not taxable on the theory that such taxation would merely have the effect of taking money out of one pocket and putting it in another (Cooley on Taxation, Sec. 621, 4th Edition). Taxing such property would not serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on account of the paper work, time and consequently, expenses it would entail (The Law on Local Taxation, by Justiniano V. Castillo). It is axiomatic that when public property is involved exemption is the rule and taxation, the exception ( Social Security System vs. City of Bacolod , 115 SCRA 412, National Waterworks and Sewerage Authority vs. Quezon City , 23 SCRA 286; Board of Assessment Appeals vs. Court of Appeals , 8 SCRA 225). This implied exemption is generally reinforced by express provisions in the constitution or statutes exempting such property. (Cooley, Ibid. ) Accordingly, Section 40 of Presidential Decree No. 464, as amended (Real Property Tax Code), exempts from real property tax real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned corporation so exempt by its charter unless the beneficial use of which has been granted to a taxable person. Gifts or donations 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 said government are exempt from the donors (gift) tax under Section 104(2) of the National Internal Revenue Code. Certificates placed upon documents, instruments and papers for the national, provincial, city or municipal government, made at the instance and for the sole use of some other branch of the national, provincial, city or municipal government, are exempted from documentary stamp tax (see Section 212[2], NIRC). With regard to the capital gains tax, no such tax is due because there is no capital gain to be taxed, there being no sale or exchange of capital assets involved (see Section 34[2] of the National Internal Revenue Code) since the subject properties were voluntarily surrendered to the Republic of the Philippines which is the real owner of the same. For all the foregoing, we reiterate the view that the transfer in favor of the Government of the subject properties may be effected without the payment of the taxes being required to be paid by the Registers of Deeds of Laguna and Cavite. Incidentally, it may be mentioned that Executive Order No. 286 dated July 25, 1987, which created the Sequestered Assets Disposition Authority (SADA) to oversee the disposition of, among others, assets and properties voluntarily surrendered to the PCGG, provides for the exemption of SADA from the payment of taxes, fees and charges under Section 5 thereof, which reads as follows: SEC. 5. Exemption from Taxes, Fees and other Charges. The provisions of any law to the contrary notwithstanding, the Authority as well as the sequestered corporations and assets transferred to it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the said corporations to the Authority and/or from the National Government to a private acquisition or buyer imposed by the National Government or any subdivision thereof; Provided, that in case where government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, fees, charges, imposts and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Authority. The sale or transfer of such corporations of assets shall not be enjoined or hindered by the existence of any liens by way of taxes, charges or other assessments in favor of the government at the time of sale or transfer; Provided, that the proceeds from such sale or transfer shall be subject to the tax lien and shall first be applied to satisfy such obligations secured by such liens." (Emphasis supplied) In view thereof, this Office is of the opinion and hereby holds that the consolidation of title of the property surrendered by IRC, as ill-gotten wealth, in favor of the Republic of the Philippines is exempt from capital gains tax and documentary stamp tax. For your information and guidance. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue