Active Realty and Development Corporation Liability for Documentary Stamp Tax with Respect to Certain Deeds of Assignment entered into with Mt. Malarayat

July 3, 1997 BIR RULING NO. 073-97 196 000-00 073-97 Active Realty and Development Corporation 15th Floor A.C.T. Tower Sen. Gil J. Puyat Ave. Salcedo Village Makati City Attention: Atty . Alejo S . Dimailig Gentlemen: This refers to your letter dated September 3, 1996 stating that Mt. Malarayat Golf and Country Club, Inc. (Mt. Malarayat),a corporation created to develop and manage a golf course, a country club and facilities appurtenant thereto offered to the public its entire authorized capital stock; that to carry out this intention, it filed with the Securities and Exchange Commission (SEC) an application for the registration of its entire authorized capital stock and to offer and sell the same to the public; that in compliance with the requirements of SEC relative to the registration of the shares of stock of Mt. Malarayat and the grant of the permit to sell its share to the public, an agreement erroneously described as a "Deed of Assignment" was entered into on June 26, 1995 by Active Realty and Development Corporation (ARDC) and Mt. Malarayat whereby ARDC committed and manifested its intention to assign, transfer and cede to Mt. Malarayat at a time not indicated the properties covered by Transfer Certificates of Title Nos. T-98576, T-98575, T-86895, T-86897, T-86898, T-86899, T-86900, T-86901, T-86902, T-86903, T-86896, T-64139 and T-49447, that shall comprise the Mt. Malarayat Golf and Country Club; thus, the Second, Third and Fourth whereas clauses of said Deed clearly state that: cdti "WHEREAS, the ASSIGNEE intends to file a registration statement with the Securities and Exchange Commission ("SEC") for the registration of its entire authorized capital stock consisting of Four Thousand (4,000) no par value shares and to offer and sell the said shares to the public; WHEREAS, the ASSIGNOR intends to subscribe to Two Thousand Seven Hundred Fifty (2,750) no par value shares consisting of One Thousand Five Hundred Thirty Nine (1,539) Gold Shares and One Thousand Two Hundred Eleven (1,211) Silver Shares of the capital stock of the ASSIGNEE for a total consideration of ONE BILLION SIX HUNDRED EIGHT MILLION THREE HUNDRED SEVENTY FIVE THOUSAND PESOS (P1,608,375,000); WHEREAS, the ASSIGNOR intends to assign to the ASSIGNEE and the ASSIGNEE is willing to accept all of the ASSIGNOR's rights, title and interest in and to the properties in full payment of its subscription in the Mt. Malarayat Golf and Country Club, Inc. which in turn would fully pay its subscription," that there was some confusion on the meaning of paragraph one of the Deed which appeared to be inconsistent with the intention of the parties as expressed in the Second, Third and Fourth Whereas Clauses of the Deed; that paragraph one seems to indicate that the properties had by virtue of the Deed already been assigned and the Assignee as having accepted the properties said to have already been assigned; that it states that: "1. Assignment .In full payment of the Subscription and to the extent of ONE BILLION SIX HUNDRED EIGHT MILLION THREE HUNDRED SEVENTY FIVE THOUSAND PESOS (P1,608,375,000),representing the value of the Properties, the ASSIGNOR hereby agrees to TRANSFER, CONVEY and ASSIGN unto the ASSIGNEE, and the ASSIGNEE hereby ACCEPTS ,all of the ASSIGNOR's rights, titles and interests in and to the Properties, more particularly described in Annex "A". The ASSIGNOR, agrees and commits itself to receive and/or dispose only such number of share as may be equivalent to the percentage of accomplishment of the development of the golf course in accordance with the Development Agreement entered into by the same abovementioned parties, executed on June 26, 1995." that another vague phrase in the aforequoted paragraph is that which mistakenly values the land to be transferred for the shares as P1,608,375,000.00 when the truth of the matter is that this refers to the cost of the entire project including the land and the improvements (i.e.,golf course, country club, other facilities) the construction of which as of the date of said Deed has not yet started; that to clarify these vague and inconsistent provision and to establish with clarity the value of the land to be transferred, the parties signed on June 24, 1996 a Supplement to Deed of Assignment clearly stating in no uncertain terms that: "1. Nature of the Deed . The DEED constitutes the undertaking, commitment and intention of the ASSIGNOR to assign, transfer and cede unto the ASSIGNEE the properties that shall comprise the Mount Malarayat Golf and Country Club. It is executed in compliance with the requirements of the Securities and Exchange Commission relative to the licensing of the sales of stock of the ASSIGNEE and the grant of the permit to sell said shares. 2. Subject of the Assignment . The properties subject of the assignment are as follows: a.) portions of the forty-four (44) parcels of land identified in Annex "A" of the DEED, with a total area of 1,131,729.39 square meters, more or less, out of the grand total area of 1,852,544 square meters comprising the 44 parcels of land; b.) the proposed improvements that shall constitute the golf and country club as enumerated in Art. 1, Par. 1 of the Development Agreement entered into between the ASSIGNOR and the ASSIGNEE on June 26, 1995, pursuant to the provisions of which the DEED has been executed. 3. Implementation . To implement the provisions of the DEED, the ASSIGNOR shall convey in favor of the ASSIGNEE the titles covering the areas comprising the golf and country club as soon as they have been identified and segregated." that on July 25, 1996, to implement the provisions of the Deed as clarified by the Supplement to the Deed, ARDC and Mt. Malarayat entered into a Deed of Assignment identifying the number of shares of Mt. Malarayat that will be exchanged for the 1,131,725.39 sq. meters of the land of ARDC and indicating also the value of said land. Based on the foregoing, you now request for a ruling on ARDC's liability for documentary stamp tax with respect to certain deeds of assignment described above entered into with Mt. Malarayat. In reply, please be informed that the documentary stamp tax prescribed in Section 196 of the Tax Code, as amended should be due on the Deed of Assignment dated July 25, 1996 and not on the Deed of Assignment dated June 26, 1995 since the latter Deed of Assignment merely expresses an intention or commitment to assign the properties subject matter thereof for Mt. Malarayat shares while the Deed of Assignment dated July 25, 1996 is that which actually carries out or executes the intention expressed in the first Deed. Further, the Deed of Assignment dated June 26, 1995 does not vest title upon the assignee. The operative act of the Deed of Assignment dated June 26, 1995 is the execution of another Deed of Assignment dated July 25, 1996. It is well settled in our jurisprudence that when there having been a meeting of the minds of the parties to a contract, their true intentions in not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. (Art. 1359 Civil Code of the Philippines) Accordingly, since the subject land is valued at P452,690,116.00, the documentary stamp tax due is P15.00 for each P1,000.00 of fractional part thereof of P452,690,116.00 or P6,790,365.00, more or less. aisadc 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. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue