Bureau of Local Government Finance Opinion

March 27, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Poblador Bautista & Reyes Law Offices 5th Floor SEDCO 1 Building 120 Rada corner Legaspi Streets Legaspi Village Makati City Attention: Atty. Alexander J. Poblador Atty. Bertrand A. Baterina Gentlemen : This refers to your letter dated September 21, 2001 requesting in behalf of your client, Cocoa Specialties, Inc. (CSI), opinion on whether the issuance of new Tax Declaration in favor of a corporation over buildings, which had been held by an individual (Trustee) and declared in his name and in trust for the said corporation, constitutes a transfer that is subject to transfer taxes. HEDCAS Representations are made that the Trustee, Mr. Pe Suy Kee, is the registered owner of the following improvements consisting of buildings constructed in Guyong, Sta. Maria, Bulacan on the real property registered in the name of Alsa Industries, Inc.; Tax Declaration Area (Square (Assessment of Real Meters) Property) No. 99-24010-01832 206.25 99-24010-01833 3,844.25 99-24010-01834 61.06 00-24010-01835 600 00-24010-01836 189 00-24010-01837 2,380 00-24010-01838 25.80 Representations are made further that the buildings were constructed with funds belonging to CSI and were placed in the name of the Trustee for convenience only, the intent being that Trustee would hold title to the Buildings in trust for, and for the benefit of CSI. CSI has revoked the trust and seeks the cancellation of the above Tax Declarations so that new ones can be issued over the Buildings in favor of CSI. However, the Municipal Assessor of Sta. Maria, Bulacan is of the opinion that transfer taxes are due prior to the issuance of new Tax Declarations in CSI's name. On the other hand, CSI claims that the aforesaid taxes are inapplicable for reason that the Buildings had only been held by Mr. Pe Suy Kee in trust for CSI, hence, it is the actual and beneficial owner of the Buildings in the first place and there was no transfer of ownership from Mr. Pe Suy Kee to CSI when CSI later on sought the issuance of new Tax Declarations in its name. In this connection, this Bureau takes cognizance on the following facts mentioned in the documents submitted: 1. The registered owner of the seven (7) buildings is Mr. Pe Suy Kee even before the execution of the Declaration of Trust in which he is the trustee. Under normal circumstances, the trustor is the registered owner. 2. The TDs were issued in the name of Mr. Pe Suy Kee even before the execution of the Declaration of Trust. The certified true copies of the TDs are dated 05 December 2000 while the Declaration of Trust was executed 16 February 2001. TECIHD 3. There was no showing that CSI is indeed the owner of the Buildings other than the allegation that the Buildings were erected with funds belonging to CSI. 4. It is clear from the Declaration of Trust that there is a transfer of title upon revocation. It was stated therein the ". . . upon revocation of the trust therein contained, for the purpose of effecting the transfer and assignment of Buildings to TRUSTOR or its designated nominee, with full powers and authority to execute the requisite deed of assignment and any and all other documents necessary to cause the transfer of the Buildings . . . in the name of TRUSTOR . . . ." (Underscoring supplied) (Item 3, Declaration of Trust) In view of the foregoing facts, it is submitted that there was a transfer of title over the buildings. Article 1440 of the Civil Code of the Philippines provides that "a person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary." cITCAa It has been said that a trust, in its simplest elements, is a confidence reposed in one person, who is termed trustee, for the benefit of another, who is called the cestui que trust, the source of the trust being called the trustor. (Registration of Land Titles and Deeds, Pena, Pena, Jr., Pena, 1994 rev. ed., 351) In a trust, the legal title to a property is held by one and the equitable title or beneficial title is held by another. (Civil Code of the Philippines, Paras, 12th ed., 1989, pp. 785-786). The trustee or holder has legal title to the property (ibid) . In the herein case, Mr. Pe Suy Kee, the registered owner of the buildings has legal title over the same. Upon revocation of the trust, this legal title will be transferred to CSI in accordance with the provisions of the Declaration of Trust. In fact, it was provided therein that the Trustee, Mr. Pe Suy Kee, will execute the necessary documents to effect the transfer of the Buildings to CSI. Under Section 135 of the LGC, it is provided that "the province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property ." Clearly, in the present case, there is a transfer of legal title from Mr. Pe Suy Kee, trustee to CSI, trustor, upon revocation of the trust. Moreover, a declaration of trust with provisions for transfer of property is a Deed of Conveyance. The mode of transferring ownership or title over property in the herein case is by tradition a consequence of the declaration of trust with transfer of property. (Art. 712, Civil Code of the Philippines) Therefore, the Municipal Assessor of Sta. Maria, Bulacan is correct in requiring prior payment of the transfer tax before issuing new TDs in favor of CSI. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director