BIR Ruling No. 145-10

December 16, 2010 BIR RULING NO. 145-10 RA No. 6657; BIR Ruling 100-98 Samer R. Muti Revenue District Officer RDO No. 99, Malaybalay City Sir : This refers to your letter dated March 1, 2010 requesting for an opinion whether the transfer of ownership of fifty (50) hectares of property from San Miguel Foods, Inc. (SMFI) in favor of Panaw Sumilao Farmers Cooperative is exempt from taxes. Based on documents submitted, it appears that SMFI is the registered owner of a parcel of land located in Sumilao, Bukidnon, with an area of 144 hectares covered by Transfer Certificate Title (TCT) No. T-80005, which SMFI acquired by purchase from NQSR Management and Development Corporation (NQSRMDC); that SMFI is presently developing an agro-industrial complex in the SMFI property; that a conversion order was issued by the Office of the President (OP) on March 29, 1996 in OP Case No. 96-C-6424 which authorized the conversion of said property to agro-industrial use; that prior to the OP Conversion Order, the SMFI Property was issued Certificate of Land Ownership Award (CLOA) in favor of 137 agrarian reform beneficiaries, which CLOA was, however, subsequently cancelled with the finality of the Supreme Court decision in Fortich v. Corona, G.R. 131457, upholding the OP Conversion Order; that a group of farmers, who later organized themselves as Panaw Sumilao Farmers Cooperative, sought for the revocation of the OP Conversion Order; that in order to amicably settle an agrarian dispute involving SMFI and the farmer-beneficiaries who have petitioned for the revocation of the OP Conversion Order, SMFI agreed to transfer 50 hectares of property to qualified farmer-beneficiaries of Panaw Sumilao, through their Cooperative-Panaw Sumilao Farmers Cooperative; and that Secretary Nasser C. Pangandaman, Secretary of the Department of Agrarian Reform, has issued a letter dated November 20, 2009, confirming that the said transfer falls within the ambit of Republic Act (RA) No. 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988". You now request opinion on the tax treatment of the transfer of the property from SMFI to the Panaw Sumilao Farmers Cooperative. In reply, please be informed that Section 66 of Republic Act (RA) No. 6657, otherwise known as the "Comprehensive Agrarian Reform Law of 1988", provides: ACcISa Sec. 66. Exemptions from Taxes and Fees of Land Transfers. Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof; Provided, That all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled. In its letter dated 20 November 2009, then Department of Agrarian (DAR) Secretary Nasser Pangandaman confirmed that the transfer of the 50-hectare of land in favor of the farmer-beneficiaries is within the ambit of the CARP law, explaining that it was done to put an end to an agrarian dispute; that the land shall be given only to farmer-beneficiaries found to be qualified by DAR, through the Municipal Agrarian Reform Officer, in accordance with DAR A.O. No. 7 series of 2003; and that the DAR shall intervene in the process of selecting the farmer-beneficiaries. In BIR Ruling No. 100-98 dated June 29, 1998, this Office ruled that the donations of homelots to tenant-beneficiaries of the comprehensive agrarian reform program are exempt from the payment of registration fees, and other taxes for the conveyance or transfer thereof. Moreover, in BIR Ruling UN-038-94, dated February 8, 1994, this Office ruled that the transfer of land to a CARP beneficiaries cooperative under RA No. 6657 is exempt from the payment of income tax, documentary stamp tax and other taxes and fees pursuant to Section 66 of RA No. 6657. Applying the foregoing provision and precedent rulings, the transfer of the property by SMFI to Panaw Sumilao Farmers Cooperative is exempt from all taxes and fees being imposed in connection therewith. Since the DAR, however, confirmed that the acquisition and distribution of the land is through CARP, title over the distributed property in favor of the farmer-beneficiaries should be evidenced by CLOA issued by DAR, and that the distributed land should be credited as part of the DAR's total target of agricultural lands for acquisition and distribution pursuant to CARP. This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. acADIT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue