BIR Ruling [UN-241-94]

August 16, 1994 BIR RULING [UN-241-94] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . S. U. Salvador, Jr . Gentlemen : This refers to your letter dated July 15, 1994, requesting in behalf of your client, Zamboanga Wood Products, inc. (ZWPI) for application to its Manila Polo Club, Inc. (MPCI) proprietary share of BIR Ruling No. 235-89 which states that when a proprietary club share owned by a corporation but registered in the name of one of its officers, is transferred in the name of another officer of said corporation, it is not subject to income tax or capital gains tax. cdtech It is represented that in 1980, ZWPI purchased one (1) share of Manila Polo Club, Inc. with a par value of P100,000.00; that the subscription was paid for with funds of ZWPI but for purposes of convenience, and in accordance with the rules and regulations of MPCI, it was registered in the name of Mr. Nicolas O. Katigbak as owner thereof; that the cost of the said shares is still carried in the books of ZWPI as part of its assets to date; that on November 24, 1980, Mr. Nicolas O. Katigbak executed a Declaration of Trust wherein he acknowledged ZWPI as beneficial owner having absolute title to and ownership of the MPCI share, whereas he was only a nominee of ZWPI to hold naked title to the said share; that the same declaration acknowledged the right of ZWPI to transfer the share to another individual at any time; that on February 3, 1981 MCPI issued Proprietary Membership Certificate no. 2262 in the name of N.O. Katigbak that in April 1993, Mr. Katigbak died, hence ZWPI is transferring the said proprietary share to Mr. Alfonso S. Yuchengco III, present Chairman of the Board of Directors of ZWPI. In reply, please be informed that since the transfer of the proprietary club shares does not involve any consideration, the same is not a taxable transaction; hence, the transferor, Nicolas O. Katigbak is not subject to income tax. Moreover, the above transaction is not subject to the gift tax, since there is no donative intent under the above circumstances. 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, February 10, 1969). However, the Proprietary Membership Certificate of Manila Polo Club, Inc. is a certificate showing interest in the property of the corporation. Accordingly, the transfer of said Certificate is subject to the documentary stamp tax of P0.50 on each P200.00 or fractional part thereof, of the face value of such certificate, in accordance with Section 178 of the Tax Code, as amended by Republic Act No. 7660. (BIR Ruling No. 235-89 dated November 20, 1989; BIR Ruling No. 029-90 dated March 15, 1990.) cd Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner Legal Service