Transfer of the Common Areas and Facilities Within the First Cavite Industrial Estate to First Cavite Industrial Estate Association, Inc. Not Subject to the Creditable Expanded Withholding Tax, Documentary Stamp Tax and Donor's Tax

July 10, 1997 BIR RULING NO. 075-97 000-00 000-00 075-97 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated January 23, 1996 requesting for a ruling confirming your opinion that the transfer of the common areas and facilities within the First Cavite Industrial Estate (FCIE) to First Cavite Industrial Estate Association, Inc. (FCIE Association, Inc.) is not subject to the creditable expanded withholding tax, documentary stamp tax and donor's tax. It is represented that your client, First Cavite Industrial Estate is a corporation duly organized and existing under and by virtue of Philippine laws and is presently holding office at 3rd Floor, PDCP Bank Building, 371 Sen. Gil J. Puyat Avenue, Makati City, Metro Manila; that it is the owner/developer of FCIE, a privately-owned industrial estate registered with the Philippine Economic Zone Authority (PEZA) as a Special Economic Zone (ECOZONE); that the industrial estate consists of salable lots and common areas and facilities such as roads, parks, open spaces, administration complex buildings, drainage system, power supply and water supply system, in accordance with the plan submitted by FCIE, Inc. and duly approved by the PEZA, Board of Investments (BOI), and the House and Land Use Regulatory Board (HLURB); that FCIE, Inc. has already sold all the salable lots within the estate; that under the terms of the Agreement to Sell and to Purchase, the Purchaser is required to become a member of FCIE Association , Inc., a non-stock, non-profit corporation formed, pursuant to the Estate Rules and Regulations for FCIE, to hold ownership of common areas and facilities of the FCIE project and to manage, maintain, and preserve in good condition the Estate project; that the Association is composed of the lot owners/buyers within FCIE whose membership in the Association is automatic pursuant to paragraph 4.3, Rule IV, Section 1 of the said Estate Rules and Regulations, which we quote: " Membership in The Association The original lot parcel buyers of the Estate as evidenced by a valid and existing Agreement To Sell And To Purchase between FCIE, Inc. and Locator and/or Lot Buyer, or the registered owners of the lot parcels of the Estate with the Register of Deeds of the Province of Cavite, shall automatically be members of the First Cavite Industrial Estate Association. Membership in the Association, being an appurtenance of ownership of a lot parcel, cannot be transferred, conveyed, encumbered or otherwise disposed separately from the lot parcel to which it appertains. Any member who fails to consummate the Agreement To Sell And To Purchase or ceases to be a registered owner of a lot parcel shall automatically cease to be a member of the Association as of the date of the cancellation of the registration of his ownership in the Registry of Deeds of the Province of Cavite. In cases of corporations, partnerships or trusts, its authorized officers shall designate a person who shall represent it in the Association. In all the foregoing instances, the person duly designated as representative must be registered with the Association by filing a written designation with the Secretary of the Association."; that the above provision was derived from the Estate Master Deed and Declaration of Restrictions; that since the membership is appurtenant to ownership of a lot within of a lot within the industrial estate, a member automatically ceases to be a member when he sells his lot; that since all the salable lots have already been sold, FCIE, Inc. will now transfer the little to the common areas and facilities to FCIE Association, Inc. pursuant to the Estate Rules and Regulations for FCIE; that the transfer of the common areas and facilities shall be without monetary consideration; and that to recover the costs, including developmental costs of the common areas and facilities, which are not separately salable, FCIE, Inc. has already included the said costs in the selling price of the salable lots. In reply thereto, please be informed that since the transfer of the common areas and facilities to the Association is without consideration, no income will be generated therefrom, and a fortiori , no creditable expanded withholding tax is payable and collectible. The circumstances in the instant case are very similar to that of a condominium project wherein this office consistently held that the transfer of the common areas by the developer of the condominium project to the condominium corporation is not subject to creditable withholding tax. (BIR Rulings UN-145-94 dated April 26, 1994; UN-154-94 dated May 24, 1994; and DA-362-96 dated October 3, 1996) The transfer is also not subject to the documentary stamp tax imposed by Section 196 of the Tax Code since under Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26), "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." (BIR Rulings UN 126-94, UN-145-94, UN-154-94 and DA-362-96, supra.) Furthermore, the absence of donative intent herein likewise renders the transfer not subject to donor's tax imposed under Section 92 of the Tax Code. It has been held that in a direct gift, the element of donative intend must be present in the transfer of property to be donated for it to be subject to donor's tax. (BIR Ruling No. 029-90 dated March 15, 1990 citing Perez vs. Commissioner, CTA Case No. 1707, February 10, 1969) cdti Finally, since the value of the common areas and facilities thereat have already been included in the selling price of the salable lots paid for by the lot owners and therefore cannot be separately sold, its transfer in favor of the Association would be a mere formality to finally effect transfer of title thereto. This ruling is being issued on the basis of the foregoing facts 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