BIR Ruling No. 499-11

December 15, 2011 BIR RULING NO. 499-11 Sec. 101 (A) (2); 196; BIR Ruling No. 003-01 Juanito A. Ricafort Ilijan Norte Tubigon, Bohol Attention: Mr. Juanito A. Ricafort Gentlemen : This refers to your letter dated January 26, 2010, as indorsed by the Regional Director, Revenue Region No. XIII, Cebu City, requesting for tax exemption on the donations made in favor of the Municipal Government of Tubigon, Bohol. Documents submitted show that the late Gregorio P. Ricafort (or GPR with TIN 126-366-870) is the registered owner of a parcel of land located at Centro, Tubigon, Bohol with an area of 6,743 sq.m. as evidenced by Tax Declaration No. 2008-44-0011-00323. GPR died intestate on February 9, 1996, leaving the above-quoted property to all the legal and sole heirs, namely Juanito A. Ricafort, Ludivina A. Ricafort and Bienvenido A. Ricafort. The said heirs in the Extra Judicial Settlement of Estate among Heirs with Simultaneous Deed of Donation dated September 25, 2009 had agreed to waive their rights, interests and participation over the 5,743 sq.m. portion of the above-described land in favor of the Municipal Government of Tubigon and the remaining part shall be shared in common by the heirs. The said heirs voluntarily and freely give, transfer and convey by way of donation the aforesaid property with the purpose of future municipal development projects. The Sangguniang Bayan of Tubigon, Bohol on their 33rd Regular Session held on September 17, 2009 thru Resolution No. 2009-153 Series of 2009 had authorized their Hon. Mayor Luna C. Piezas for the favorable acceptance of the said donation to their local government. The estate tax of the late GPR had already been settled and the pertinent CAR had already been issued. On October 5, 2009, another Deed of Donation over a 225 sq.m. out of the 3,094 sq.m. property covered by Tax Declaration No. 2008-44-0024-00599 and located at Pinayagan Norte, Tubigon, Bohol was executed in favor of the Municipal Government of Tubigon. The registered owner thereof, Catalina Libarios (TIN 283-728-301-000) who assents to the donation is fully aware that the property will be used as the site of the new concrete water reservoir of the Tubigon Municipal Waterworks System. The Municipal Government of Tubigon through its Mayor Luna C. Piezas has likewise accepted the donation of the 225 sq.m. lot and that the Sangguniang Bayan in session duly assembled has authorized their Mayor to accept and sign the Deed of Donation per Resolution No. 2009-154 Series of 2009 dated September 17, 2009. AcTDaH In reply, please be informed 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 said Government is exempt from the payment of the donor's tax pursuant to Section 101 (A) (2) or (B) (1) of the Tax Code of 1997, as amended. Inasmuch as the Municipal Government of Tubigon, Bohol is a political subdivision of the government, any donation to it is exempt from the payment of donor's tax pursuant to the above provisions of the Tax Code, as amended. In case of donation of real property, the Register of Deeds shall annotate this condition at the back of the TCT because failure to comply with the said condition shall be a ground for the revocation of the donation pursuant to Article 764 of the New Civil Code. Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the Tax Code, provides that conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable. Thus, the deeds of donation are as well not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. (BIR Ruling No. 003-2001 dated February 5, 2001) If the donor is a Value-Added Tax (VAT) registered person and the donation is an ordinary asset, the donation is subject to VAT pursuant to Section 4.106-7 of Revenue Regulations (RR) No. 16-2005, the same being considered a transaction deemed sale, but the input VAT attributed to the VAT portion of the cost of the donation should be deducted from the accumulated input VAT of the donor. If the donor is not a VAT registered person, the donation is exempt from VAT. However, if the same properties acquired by gift are subsequently conveyed by way of sale or exchange, the sale will be subject to corporate income tax on the gain realized which is determined by deducting from the gross selling price the historical cost or the adjusted basis thereof, as it would be in the hands of the donor, pursuant to Section 27 in relation to Section 101, both of the Tax Code of 1997, as amended, and consequently to the creditable expanded withholding tax under Section 2.57.2 of RR No. 2-98, as amended. If the municipal government donates the same properties donated to it to a non-exempt donee, it shall be liable for donor's tax pursuant to Section 98 of the Tax Code of 1997, as amended. 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 as null and void. TSAHIa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue