Request for Exemption from Capital Gains Tax on Transfer of Titles Over Lots from Grimm and Parsons to G-P & Co.

June 29, 1998 BIR RULING NO. 108-98 21 (e)-000-00-108-98 G-P & Co. 519 Remedios Street 1004 Manila Attention: Mr . Patrick C . Parsons Managing Partner Gentlemen : This refers to your letter dated August 21, 1996 stating that Edward M. Grimm ("Grimm"), an American, married to Maxine T. Grimm and Charles Parsons ("Parsons"), a Filipino, and married to Katrushka Jurika Parsons acquired seven (7) parcels of land in Malate, Manila using funds that they borrowed from the Bank of the Philippine Islands (BPI); that said lots are covered by Transfer Certificates of Title Nos. 28559, 28560, 28561, 28562, 28563, and 28564 of the Registry of Deeds of Manila dated February 29, 1952 and registered in their names as co-owners in equal shares; that two weeks later or on March 17, 1952, they mortgaged said 7 lots to BPI as collateral to secure their loan therein; that said loan was paid by the partnership G-P & Company, the G thereof for Grimm and the P thereof for Parsons which was formed on February 14, 1952 and recorded by the Securities and Exchange Commission (SEC) on February 21, 1952; that consequently, Grimm and Parsons became trustees over the said 7 Malate lots with G-P & Company as the beneficial owner thereof; that Grimm died on November 27, 1977, Katrushka on August 3, 1982, and Parsons on May 12, 1988 before the subject lots were cleared of mortgages on October 15, 1991 to one bank after another for loans of the partnership G-P & Company; that the acquisition cost of the subject lots and the annual realty taxes thereof have always been booked as belonging to G-P & Company; and that in 1988, the heirs of Grimm and in 1995, the executor of the estates of Charles Parsons and Katrushka Jurika Parsons respectively acknowledge that Grimm and Parsons were mere implied trustees for and in behalf and for the benefit of G-P & Company as the beneficial owner of the 7 Malate lots. LexLib Based on the foregoing, you are in effect, requesting exemption from the capital gains tax on the transfer of the titles over said lots from Grimm and Parsons to G-P & Company "because there is in fact and in law no transfer of the beneficial ownership, since the naked ownership of the trustees Grimm and Parsons and the beneficial ownership of the partnership are consolidated in G-P & Company." 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 and 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. In the instant case, there is no sale, exchange or disposition of real property involved, since G-P & Company is the real owner of the aforesaid seven (7) parcels of the land while Grimm and Parsons acted merely as trustees. Accordingly, the transfer of the titles over the said lots from the trustees Grimm and Parsons to G-P & Company, the real owner thereof, without monetary consideration under and by virtue of the Deeds of Acknowledgment of Implied Trust and Waiver of Rights and Interest to Real Estate Properties respectively executed by the heirs of Grimm in 1988 and by the executor of Parsons in 1995 is not subject to the capital gains tax. prLL Moreover, the said Deeds are not subject to the documentary stamp tax on deeds of sale and conveyances of real property imposed by Section 196 of the Tax Code, as amended by R.A. No. 7660, but only to the documentary stamp tax on certificates of sale under Section 188 of the same Code. This ruling is being issued on the basis of the foregoing facts as represented. If it shall be found later, upon investigation, that these facts are not correct, then this ruling shall be considered null and void. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue