BIR Ruling [UN-062-95]

February 13, 1995 BIR RULING [UN-062-95] Romula, Mabanta, Buenaventuta Sayoc & De Los Angeles Fourth Floor King's Court I 2129 Chino Roces Avenue Makati, Metro Manila Attention: Atty . Carlos G . Baniqued Atty . Mario Renato A . Navas Atty . Priscilla B . Valer Gentlemen : This refers to your letter dated November 17, 1994 requesting for a ruling confirming your opinion that the conveyance of real property held in trust by Raul T. Concepcion, as Trustee, for Raul Anthony, trustor-beneficiary, is not subject to income tax, expanded withholding tax, donor's tax nor to documentary stamp tax. It is represented that the Manila Polo Club Townhouse is a row of residential units which were built on land owned by the Manila Polo Club; that each unit holder has a 25-year lease on the land on which the townhouse stands; that under the Rules of the Manila Polo Club, only members of the Manila Polo Club are eligible to own the townhouse unit and lease the land on which the unit stands; that sometime in January 1994, Richard Powell, a member of the Manila Polo Club, was in dire need of money because he would undergo a heart operations; that he offered to sell his Townhouse Unit No. 29 at the Manila Polo Club Townhouse; that Raul Anthony wanted to buy the townhouse but he was disqualified to buy it because he was not a member of the Manila Polo Club; that to be eligible to hold title to the property in his own name, Raul Anthony applied to become a member of the Manila Polo Club; that however, the application process would take at least three (3) months to complete and, in the meantime, the seller, Mr. Powell, needed the cash immediately for his operation; that Raul Anthony thus requested his father Raul, Sr., who was a member of the Club, to buy the townhouse unit in trust for Raul Anthony; that on February 6, 1994, Raul, Sr. executed a Declaration of Trust declaring that he holds title over the Townhouse Unit in trust for his son Raul Anthony; that on January 12, 1994, Raul, Sr. bought the townhouse unit and assumed the lease on the land from Robert Powell, in his own name but for the benefit of, and with funds provided by Raul Anthony; that the said Raul Anthony is now eligible to own the Townhouse Unit in his own name; and that Raul, Sr. now desires to convey the property to Raul Anthony by executing a Deed of Conveyance of Property Held in Trust in favor of Raul Anthony. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales or other forms of conditional sales, by individuals, including estates and trust shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, and considering that there will be no actual transfer of ownership over the aforementioned property on the contemplated conveyance of the said property by Raul T. Concepcion, as trustee to Raul Anthony A. Concepcion, trustor-beneficiary, the said transfer is not subject to the 5% capital gains tax under Section 21(e) of the Tax Code, as amended. Moreover, the deed to be executed conveying the aforementioned realty in favor of Raul Anthony A. Concepcion as trustor-beneficiary is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment to the said deed is subject to the documentary stamp tax of P10.00 under Section 188 of the same Code. (BIR Ruling No. 123-93 dated April 5, 1993) Furthermore, the contemplated transaction is not subject to gift tax, since there is no donative intent under the above circumstances. The element of donative intent must be present in the transfer of property to be donated in order that the same may be subject to donor's tax. (Perez vs. Commissioner, CTA Case No. 1707, February 16, 1969) This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation that the facts are different, then this ruling shall be considered null and void. cdta Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)