Taxability of the Transfer of Title to a Real Property in the Philippines in Favor of the Trustees of a Revocable Inter Vivos Trust

March 19, 1992 BIR RULING NO. 086-92 21 (e) 238-89 086-92 Mr. Carlos A. Lardizabal, Esq. 3580 Welshire Boulevard 17th Floor Los Angeles, California, U.S.A. S i r : This refers to your letter dated July 5, 1991 requesting for a ruling as to the taxability of the transfer of title to a real property situated in the Philippines by the spouses Lardizabal in favor of the trustees of a revocable inter vivos trust. It is represented that Carlos A. Lardizabal is a Filipino and a permanent resident of Los Angeles, California, U.S.A.; that together with his wife, Solita Pascual Lardizabal, Mr. Lardizabal would like to adopt the estate plan they have in the United States which consists of a Pour-Over Will and a Revocable Inter Vivos Trust (Living Trust); that the living trust is basically a revocable inter vivos trust which is considered a grantor's trust since the spouses, during their lifetime, are grantors, trustees and beneficiaries and hold all incidents of ownership; that they would like to change the manner of holding title to a real property located in Boac, Marinduque, from: Carlos A. Lardizabal, married to Solita P. Lardizabal, to: Carlos A. Lardizabal and Solita P. Lardizabal, Trustees, C & S Lardizabal Revocable Trust Agreement. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales or other forms of conditional sales, by individuals, including estates and trusts shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, and considering that there is no actual transfer of ownership over the aforementioned property, as a result of the transfer of the property to the spouses Lardizabal as trustees for the C & S Lardizabal Revocable Trust Agreement, the said transfer is not subject to the 5% capital gains tax under Section 21(e) of the Tax Code, as amended. Moreover, the deed conveying the aforementioned property to the Spouses Lardizabal as trustees is not subject to documentary stamp tax. The aforementioned real property may now be registered by the Registry of Deeds concerned in the name of the Spouses Lardizabal as trustees for the C & S Lardizabal Revocable Trust Agreement. This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue