BIR Ruling No. 489-12

July 30, 2012 BIR RULING NO. 489-12 Sec. 101 (A) NIRC; PD 927 as amended by PD 1216; Arts. 1352, 1409; Civil Code of the Phils. Kingsville Construction & Development Corp. Kingsville Commercial Arcade, Marcos Highway, Bo. Mayamot, Antipolo, Rizal Attention: Ms. Teresita P. Caballero Office Manager Gentlemen : This refers to your letter dated October 16, 2009 requesting confirmation of your opinion that the conveyance by Kingsville Construction & Development Corp. (KCDC) of the road lots and open spaces for adequate facilities in favor of the Kingsville Subdivision Homeowners' Association, Inc.,is exempt from donor's tax. Documents submitted disclose that KCDC, with Taxpayer Identification Number 045-000-648-275-VAT is a domestic corporation registered with Securities and Exchange Commission (SEC) under Registration No. 86422 dated May 30, 1979; that it is engaged in the business of general construction of buildings, low-cost housing, roads and other kinds of edifices; that it is the developer of Kingsville Hills Subdivision (KHS) located at San Isidro, Antipolo City and is the registered owner of the following real estate: TCT No. Area (in sq.m.) 1 190248 1,366 2 190249 1,213 3 190250 2,544 4 190251 452 5 190252 795 6 190253 868 7 190254 794 8 208259 3,078 9 208260 1,166 10 208261 1,650 11 208262 2,071 12 208263 1,935 13 208264 984 14 208265 1,633 15 208266 985 16 208267 584 17 208268 1,092 18 208269 1,848 19 208270 1,423 20 208271 864 21 208272 684 22 213136 2,064 23 213137 812 24 213138 780 25 213139 1,548 26 213140 3,020 27 213141 1,768 28 213142 844 29 213143 1,351 30 213144 636 31 213145 2,075 32 213146 996 33 213147 1,740 34 213148 972 35 213149 2,111 36 331909 179 37 256034 3,373 38 256035 832 39 256036 366 40 256037 1,353 41 256028 609 42 256039 300 43 330912 10 44 330918 639 45 330919 373 46 330920 300 47 267640 1,131 48 267641 596 49 267642 349 50 267643 1,254 51 267644 386 52 304607 125 53 220567 1,005 54 210850 1,019 55 190178 1,700 56 208228 5,231 57 208325 4,385 58 213088 2,014 59 256033 1,683 60 267635 191 61 267638 761 62 255946 447 63 R-41435 286 that on the other hand, Kingsville Hills Subdivision Homeowners' Association, Inc. (KHSHOA) is an association duly organized and existing under the laws of the Republic of the Philippines, and registered with the Housing and Land Use Regulatory Board Certificate of Registration No. 13888 dated February 23, 2006; that the association is registered with the BIR under Taxpayer Identification No. 243-833-168-000; that one of the purposes for which the Association was formed was "to construct, manage, maintain and operate adequate facilities and services for its members";that it is represented that the road lots of the said subdivision are not saleable lots but are merely used exclusively for passageways within the subdivision while the open spaces were used for the construction of recreational facilities such as basketball court, tennis court, clubhouse, swimming pool, walking alleys, etc.;that the value of the parks and playgrounds are included in the purchase price of the saleable lots of the subdivision project; and that a Joint Motion to Approve Compromise Agreement dated November 21, 2008 was executed between KHSHOA and KCDC before the HLURB mediator in HLURB Case No. NCR REM-050908-13848, the latter agreed to turn-over Kingsville Hills Subdivision, its facilities, open spaces and road lots to KHSHOA; that the turn-over of such properties by KCDC was through a Deed of Donation in favor of KHSHOA dated November 3, 2009, for the purpose of giving full management over the construction, development, maintenance and operation of adequate facilities for all the members of the Association. IEDHAT In support of your request, you attached of the following documents: 1) Duplicate Original of the Deed of Donation dated November 10, 2009; 2) Various Transfer Certificates of Title subject of this request; 3) Tax Declaration of Real Property of the above real properties; 4) BIR Certificates of Registration of KHSHOA and KCDC; 5) HLURB Certificate of Registration and Articles of Incorporation of KHSHOA; and 6) SEC Certificate of Incorporation, Articles of Incorporation and By-laws of KCDC. In reply, please be informed that Section 101 (A) provides that: "SEC. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this Chapter: (A) In the Case of Gifts Made by a Resident. (1) ... (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and THSaEC (3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a non-stock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donations, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation." In relation to this, Presidential Decree (P.D.) No. 1216 1 states that: "Section 2. Section 31 of Presidential Decree No. 957 is hereby amended to read as follows: "Sec. 31. Roads, Alleys, Sidewalks and Open Spaces. The owner as developer of a subdivision shall provide adequate roads, alleys and sidewalks. For subdivision projects one (1) hectare or more, the owner or developer shall reserve thirty percent (30%) of the gross area for open space. Such open space shall have the following standards allocated exclusively for parks, playgrounds and recreational use: (a) 9% of gross area for high density or social housing (66 to 100 family lot per gross hectare). (b) 7% of gross area for medium-density or economic housing (21 to 65 family lot per gross hectare). (c) 3.5% of gross area low-density or open market housing (20 family lots and below per gross hectare). These areas reserved for parks, playgrounds and recreational use shall be non-alienable public lands, and non-buildable. The plans of the subdivision project shall include tree planting on such parts of the subdivision as may be designated by the Authority. Upon their completion as certified to by the Authority, the roads, alleys, sidewalks and playgrounds shall be donated by the owner or developer to the city or municipality and it shall be mandatory for the local governments to accept provided, however, that the parks and playgrounds may be donated to the Homeowners Association of the project with the consent of the city or municipality concerned .No portion of the parks and playgrounds donated thereafter shall be converted to any other purpose or purposes."" (Underscoring supplied) aTEScI From the foregoing provisions, P.D. No. 957, as amended by P.D. No. 1216 mandates the subdivision owner/developer to donate the roads, alleys, sidewalks and playgrounds to the local government unit and such donation exempted from the imposition of donor's tax under Section 101 (A) (2) of the Tax Code of 1997, as amended, which provides that "gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the Government are exempt from donor's tax." Provisions of P.D. No. 1216 allow the donation by the subdivision owner/developer of the parks and playgrounds to the homeowners association with the express consent of the local government unit. In any case, however, donations to a homeowners association are not among those exempted from the imposition of donor's tax under Section 101 (A) of the Tax Code of 1997, as amended. Since the Deed of Donation over the road lots and open spaces for adequate facilities was executed between the developer, KCDC, in favor of KHSHOA, and not the municipality of San Isidro, Antipolo City, this Office cannot grant your request for exemption from donor's tax for lack of legal basis. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Defining "Open Space" in Residential Subdivisions and Amending Section 31 of Presidential Decree No. 957 Requiring Subdivision Owners to Provide Roads, Alleys, Sidewalks and Reserve Open Space for Parks or Recreational Use.