BIR Ruling No. 284-12

April 25, 2012 BIR RULING NO. 284-12 Sec. 104 of the Tax Code of 1997; 000-00 Caguioa & Gatmaytan 3/F La Paz Centre Salcedo corner V.A. Rufino Streets Legaspi Village, Makati City Attention: Alfredo Benjamin S. Caguioa Gentlemen : This refers to your letter dated March 18, 2010 requesting whether Philip Llani Evans' estate is liable for estate tax. CcaASE It is represented that the deceased, Philip Llani Evans, was a citizen and a resident of New Zealand, died in Bangkok, Thailand, left a Will upon his death on October 9, 2001, which was probated in the High Court of New Zealand and on November 22, 2001, judgment was rendered admitting Evan's will to probate and appoint Barry Samuel Macdonald as Executor; that a Reprobate proceedings were conducted before Regional Trial Court of Pasig Branch 160 and in a decision dated March 6, 2006 the Court granted the reprobate of Evan's will and appoint Alfredo Benjanmin S. Caguioa; that prior to Evan's death, he entered into a Contract to Sell with Atlanta Land Corporation ("Atlanta") a domestic corporation, for purchase of a condominium unit in Atlanta Center ("Atlanta Condo") on November 7, 1995; that despite full payment, Atlanta refused to execute a deed of absolute sale over the condominium unit in Evan's favor: that on January 18, 2008, you filed a complaint for specific performance against Atlanta before the Housing and Land Use Regulatory Board (HLURB); that on February 26, 2009, Atlanta and you undertook to look for a buyer willing to purchase the Atlanta condo and to apply the proceeds of the sale as a settlement of the respective claims; that the parties subsequently found a buyer for the Atlanta condo. Evans' estate received P3,500,000.00, equivalent to the amount for which the Atlanta condo was sold. It is your opinion that at the time of Evan's death, he was a non-resident alien; that his Philippine estate consists solely of intangible personal property; that his country has no transfer taxes and the settlement price over the Atlanta condo does not form part of the taxable estate hence not liable for Philippine estate's tax. In reply, please be informed that pursuant to Section 85 of the Tax Code of 1997, as amended, the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. However, Section 104 of the 1997 Tax Code, as amended, provides, viz. : SEC. 104. Definitions. For purposes of this Title, the terms 'gross estate' and 'gifts' include real and personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross gift': Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. CaASIc Moreover, Section 2 of Republic Act (RA) No. 4726, provides: "Sec. 2. A condominium is an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. A condominium may include, in addition, a separate interest in other portions of such real property. Title to the common areas, including the land, or the appurtenant interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the "condominium corporation") in which the holders of separate interest shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the common areas. The real right in condominium may be ownership or any other interest in real property recognized by law, on property in the Civil Code and other pertinent laws." As represented, Evans' Philippine Estate consists of an office condominium unit designated as Unit 2401, Atlanta Centre, located at No. 31 Annapolis St., Greenhills, San Juan Metro Manila and two (2) parking lots identified as B315 and B316, located at 3rd level basement of the same building. 1 Mr. Evans already has real rights or interest over the condominium unit, equivalent to its value, as the same has been fully paid, although the condominium Certificate of Title thereof has yet to be registered in his name. Moreover, paragraph 10 of Article 415 of the Republic Act No. 386 also known as the "Civil Code of the Philippines", provides: "Article 415. The following are immovable property : xxx xxx xxx (10) Contracts for public works, and servitudes and other real rights over immovable property . " (emphasis supplied) SEcAIC Considering that at the time of death of Evans, the only property left by the latter in the Philippines consists of P3,500,000.00, equivalent to the amount for which the Atlanta condo was sold, which is a real right over the immovable, the same shall be included in his gross estate for purposes of computing the Philippine estate tax under Section 84 of the Tax Code of 1997. Accordingly, this Office holds that the heirs of the late Evans, a non-resident decedent, should file the estate tax return and pay the corresponding estate tax due on the transmission of the said estate to the heirs. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Paragraph 5 of HLURB Case No. REM-011808-13767.