Tax Consequence of the Sale of a Parcel of Land for the Use of the Corporation in Its Operation

April 24, 1987 BIR RULING NO. 118-87 34-h 000-00 118-87 Gentlemen : This refers to your letter dated September 9, 1985 stating that on July 1, 1985 in an organizational meeting of the prospective stockholders of a proposed agricultural corporation, they decided to buy a parcel of land for the use of the corporation in its operation; that since as of that date, the name of the corporation as well as its registration with the Securities and Exchange Commission (SEC) were not yet certain, the prospective stockholders not wanting to miss the opportunity of buying a parcel of land which was offered at a very attractive price by Ms. Nieves de los Reyes vda. de Chaves, resolved to authorize Mr. Carlos Sy Ganihong, one of the incorporators, to buy said parcel of land and to pay the purchase price out of their subscriptions of the corporation's shares of stock with Mr. Carlos Sy Ganihong acting as trustee of said parcel of land for the corporation which was then in the process of incorporation; that upon its incorporation, he shall execute a Deed of Transfer in favor of the corporation so that the true owner (the corporation) will be reflected in the title; that on July 18, 1985, Mr. Carlos Sy Ganihong purchased the aforesaid property out of the funds of the proposed corporation; that on August 26, 1985, the corporation was duly registered with the Securities and Exchange Commission under the name of Farm World, Incorporated; and that on September 5, 1985, Mr. Carlos Sy Ganihong executed a Deed of Transfer of the said property without any consideration in favor of Farm World, Incorporated. Based on the foregoing, you now request a ruling on the following questions: cdta "1. Are my clients liable for the payment of documentary stamp? If so, how much? What is the basis, the market value or the assessed value? Are they exempted? "2. Are they liable for the payment of capital gains and/or ordinary gains tax considering that the subject is an agricultural land? Besides the transferor gained nothing; "3. Is Mr. Ganihong liable for donor's tax considering that the transfer to the corporation has no consideration?" In reply thereto, I have the honor to inform you as follows: (a) Since the Deed of Transfer of real property executed by Mr. Carlos S. Ganihong in favor of Farm World, Inc. has no consideration because the latter is the real owner of said property and the former acted only as trustee, it is subject only to the documentary stamp tax on certificates in the amount of P3.00, pursuant to Section 237 of the Tax Code, as amended by P.D. No. 1959 and not to the documentary stamp tax on deed of sale and conveyance of real property imposed by Section 245 of the same Code. (b) If as represented Farm World, Inc. is the real owner of the aforementioned parcel of land, no capital gains tax accrued and became collectible on account of the aforementioned Deed of Transfer, which pertains only to the transfer of the land by the trustee to the real owner, Farm World. (c) Considering that Mr. Carlos Ganihong has no donative intent when he executed the Deed of Transfer in favor of Farm World, Inc., he is not, therefore, subject to the donor's tax. This ruling was issued on the basis of the foregoing facts as presented. If it shall be found later, upon investigation, that these facts are not correct then this ruling shall be considered null and void. atdc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner