Exemption of a Transfer from Income Tax

August 16, 1990 BIR RULING NO. 152-90 21 (e) 235-89 152-90 S i r : This refers to your letter dated July 4, 1990 stating that the Philippine Refining Co., Inc., (PRC) is a corporation engaged in business in the Philippines; that it provides top ranking officials of sister foreign corporations assigned temporarily in the Philippines, with playing rights in various local Golf Clubs where PRC has membership or owns shares of stock; that when such official of a foreign correspondent company is temporarily assigned in the Philippines, PRC creates a trust whereby a certificate of stock or membership in a Golf Club is placed by PRC in the name of the foreign guest as Trustee of the Certificate, so that the foreign guest could play in the golf course of the club; and when the official is to depart for his home office, the trust is terminated and the stock or membership certificate is placed back in the name of the real owner, PRC; that there is no monetary consideration involved, both ways; that the placing of the certificate of membership or share of stock in the name of the guest is merely a transfer in trust, and the transfer of the certificate by the guest back to PRC is just a necessary consequence of the termination of the trust; that during the effectivity or duration of the trust, the trustee or guest can not pledge, dispose of or transfer said certificate; that the trustee further undertakes, upon the termination of the trust, to execute all the necessary papers and perform all the acts needed to vest absolute title to the certificate back to PRC; that particularly in point is the case of Mr. Thomas Noering; that in June 1986, PRC, endorsed its Manila Golf and Country Club Membership Certificate No. 1963 in favor of Mr. Thomas Noering to enable the latter to enjoy playing membership rights at the club; that no monetary consideration was paid by Mr. Thomas Noering to PRC; that simultaneously a Trust Agreement was executed by Mr. Noering in favor of PRC, whereby the former shall hold in trust for the latter the ownership of the aforesaid certificate; that it is further stipulated that at the end of the Trust period Mr. Noering shall endorse back the stock certificate to PRC; that to comply with the club rules, Membership Certificate No. 1963 was cancelled and on December 8, 1986, Membership Certificate No. 1984 was issued in the name of Mr. Noering; that as early as February 14, 1987, Mr. Noering endorsed said Certificate back to and in favor of PRC as a result of the termination of the trust; and that it is your opinion that since the stock or membership certificate is not in fact sold by PRC to the guest but merely placed in his name in trust, so that he could play under the rules of the Golf Club, which require that the playright or certificate of stock should be in the name of the player in order to be allowed to play golf, and that no monetary or other material consideration passed from PRC to the guest, and vice-versa, there is no sale of the certificate both ways, and no capital gains tax is due and payable on the transaction. cdtech Based on the foregoing representations, you now request confirmation of your above-opinion that there is no capital gains tax on the transaction above-described which involves a mere creation and subsequent dissolution of a trust agreement. In reply, please be informed that your opinion to the effect that since no monetary consideration or other material consideration passed from PRC to the guest, and vice-versa, there is no sale of the certificate both ways and, therefore, no capital gains tax is due and payable on the aforementioned transaction is hereby confirmed. Hence, the transfer of PRC as well as the subsequent transfer of Mr. Thomas Noering is not subject to income tax. Moreover, while the above transaction is considered a gift since it is a valid transfer of property from one person to another without consideration or compensation therefore, the same is not subject to the gift tax. This is so because although there is a direct gift, there is no donative intent under the above circumstances in this case. It has been held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. (Perez vs. Commissioner, CTA Case No. 1707, Feb. 10, 1969) However, since the Proprietary Membership Certificate in this case indicates, in all probability, that the registered owner thereof shall be entitled to a pro-rata share of the assets of the club, the same is considered a certificate showing interest in the property of a corporation. Accordingly, the transfer of said certificate is subject to the documentary stamp tax of P0.20 on each P200.00 or fractional part thereof of the face value of such certificate, in accordance with Section 178 of the Tax Code. Very truly yours, (SGD.) JOSE U. ONG Commissioner