Bureau of Local Government Finance Opinion

October 24, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Marissa C. De Guzman ICO-City Treasurer Manila Madam : This pertains to your letter dated July 16, 2012, requesting legal opinion on whether a transfer of controlling interest of a corporation could constitute a constructive transfer of its assets that would produce the effect of transferring ownership or title of real property, as provided for under Section 135 of the Local Government Code (LGC) of 1991 (R.A. No. 7160). It appears that your request was made in view of the request lodged by Mr. Carlos Chung, President, Supima Holdings, Inc., (SUPIMA for brevity), for refund of the transfer tax they paid under protest to your Office on March 28, 2012, amounting to Php426,435.79 per Official Receipt (O.R.) No. 065643, alleging that SUPIMA was subjected to double imposition and collection of transfer tax: first, on the sale of its property to EASTASIA Land Properties, Inc.; and second, for a mere change of its corporate name (from Lucky Textile Mills, Inc. to Supima Holdings, Inc.). On the other hand, you believe that the alleged change in majority ownership of Lucky Textile Mills, Inc. of 54.37% likewise transferred the controlling interest of the said corporation to SUPIMA and, at the same time, transferred the ownership of its assets, inclusive of real properties, hence, subject to transfer tax. Relatedly, SUPIMA, in its letter dated August 3, 2012, addressed to this Bureau, requesting legal opinion on the same subject matter, informed, among others that Lucky Textile Mills, Inc. actually changed its corporate name into SUPIMA Holdings, Inc., as evidenced by its submitted copy of its Articles of Incorporation approved by the Securities and Exchange Commission (SEC) on February 17, 1997. Noticeably, there was indeed an amendment in the primary purpose of its business (from textile manufacturing to property development) and a reduction in the members of Board of Directors (from 11 to 9). In this connection, attention is invited to the letter dated October 17, 2012, copy enclosed, of this Bureau, addressed to Mr. Gerardo Reyes, Corporate Secretary of SUPIMA, which reads in part, viz. : AcSIDE "In a letter dated May 9, 2012 addressed to the Honorable Mayor of Manila, the City Legal Officer of said city, opined that: 'xxx xxx xxx. "Relatedly, quoted hereunder is the Supreme Court (SC) Decision promulgated on April 9, 2003, in the case entitled Chua vs. Court of Appeals, G.R. No. 119255, to wit: '. . . . The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale. The recording of the sale with the proper Registry of Deeds and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate. Registration of titles does not confer ownership of the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership. (Chua vs. Court of Appeals, G.R. No. 119255, 9 April 2003)", IBP Journal, Vol. XXIX, No. 1, 1st and 2nd Quarters 2003, p. 163.)' "In the light of all the foregoing, this Bureau agrees with the above-stated opinion of the City Legal Officer of Manila . . . . (Underlining supplied) "In view hereof, attention is likewise invited to our letter dated July 25, 2012, copy enclosed, treating on a similar subject matter, which reads in part, as follows: 'xxx xxx xxx. 'Section 252. Payment Under Protest. (a) . . . . '(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability . 'xxx xxx xxx. 'Article 286. Claim for refund or tax credit. . . . . 'The tax credit granted a taxpayer shall not be refundable in cash but shall only be applied to future tax obligations of the same taxpayer for the same business. 'xxx xxx xxx.' "Similarly, therefore, the transfer tax paid under protest by SUPIMA in the total amount of Php426,435.79 should be applied only on the said corporation's future tax liability or obligation. " (Emphasis Ours) In view of the above discussion, this Bureau opines that transfer of controlling interest of a corporation would not constitute a constructive transfer of its assets that would produce the effect of transferring ownership or title of real property, as provided for under Section 135 of the said Code. It is worth emphasizing that the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate. ISTCHE In view hereof, that Office is hereby instructed to act on the said request of SUPIMA based on the foregoing ruling of this Bureau. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director