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Facts
These are the antecedent facts as found in Kensington Ruling and reiterated
in counsel's letter request
G & W Architects, Engineers and Project Development Consultants
(hereinafter GW or Trustee) is a professional partnership duly organized and
existing under and by virtue of the laws of the Republic of the Philippines. GW
adopted a tax efficient, innovative approach to commercial, office and residential
condominium ownership adapted from the Spanish model practiced for twenty-five
(25) years known as the Regimen de Comunidad de Proprietario ("Private
Ownership Community"). This model was modified to take into account the
relevant laws, regulations and practices in the Philippines. It was first utilized in
the Philippines by Comunidades Developers, Inc. as it acted as the project
proponent of the Parque Espana Condominium Project located at Filinvest
Corporate City in Alabang. 1
Thereafter, GW adopted the Private Ownership Community model, calling
it the Build To Own (BTO) System. Under this System, GW implemented and
constructed its maiden project, Penhurst Parkplace Condominium, located at the
Fort Bonifacio Township. Having successfully implemented the Penhurst
Parkplace Condominium Project under the BTO System, 2 GW undertook to act as
project proponent/organizer of the Kensington Place Condominium Project
likewise located at the Fort Bonifacio Township.
Similar to the Parque Espana and Penhurst Park-place projects, GW
identified a parcel of land then covered by Transfer Certificate of Title No. 35849
of the Registry of Deeds for Taguig (the Subject Land) on which the Kensington
Place Condominium Project (the "Project") would be established. GW found
clients who themselves undertook and participated in the collective development of
the Project and who would eventually become the owners of the individual units
which comprise the same (the "Clients"). The Clients hired GW to act as project
manager.
To begin the Project, each Client entered into a Contract to Manage and
Execute the Construction of Kensington Place Condominium (the Contract). 3 In
said Contract, each Client undertook to collectively develop the Project and to put
up his/her respective construction funding contributions for the same. In return for
such participation and as part of his/her interest in the Project, each Client was
assigned specific condominium units and parking units in the Project (the
Condominium Units and Parking Units). In addition, each Client was to have a
proportionate undivided interest in the common areas of the Project, which
common areas include the Subject Land (the Common Areas).
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For its part GW was given a mandate to manage and execute the
development of the Project and in connection thereto, to execute acts on behalf of
and for the collective benefit of the Clients. GW, however, did not and does not
assume the role of developer and hence, has not made any representation that it is,
in its own capacity, selling the units comprising the Project.
Under the terms of the Contract, each Client agreed that prior to the actual
division of the Project into individual units, their respective interests in the Project
would consist in a pro-indiviso, pro-rata share, held collectively with the other
Clients. Realizing, however, that it would be cumbersome and administratively
difficult for all the Clients to be named as owners of the Subject Land and the
Project, the Clients appointed GW, as Trustee, for the purpose of allowing the
Trustee to hold title to the Subject Land and the Project. GW was thus instructed
under the Contracts, to purchase and hold title to the Subject Land for the
collective benefit of the Clients and in proportion to their respective interests in the
Project. (A form copy of the Contract executed by GW and the Clients is attached
hereto as Annex "C").
To facilitate the collection and allocation of construction funding payments
from the Clients to the Project's suppliers and service contractors, separate
Depository and Disbursing Agreements (hereinafter, the Disbursing Agreements)
were executed by each Client with the Banco de Oro Universal Bank-Trust
Banking Group (the Bank).
SaIACT
the Common Areas. Finally, under the terms of the Contract, upon completion of
the Project, the Trustee was to execute deeds conveying in favor of the Clients
their respective Condominium and Parking Units and the Common Areas in favor
of a Condominium Corporation.
BIR Reply
We reply as follows:
1. The Private Ownership Community/BTO System which was
characterized as joint venture in Kensington Ruling, 4 did not constitute a joint
venture.
ECSHAD
aTADCE
Pascual cited with approval the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista v. Collector, G.R. No. 9996, Oct. 15, 1957, 102 Phil. 140.
ADCSEa
profits of disposing it, the brother and the other not being entitled to share in
plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties. (Magee v. Magee
123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally participating in both profits and
losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business,
and dispose of the whole property. (Municipal Paying Co. vs. Herring 150
P. 1067, 50 I11470)
The common ownership of property does not itself create a
partnership between the owners, though they may use it for the purpose of
making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the
application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,
160 No. App. 14)." 7 (Emphases supplied)
(1)
(2)
(3)
(4)
(5)
whom contributes a portion of the purchase price makes them joint owners of the
property but does not establish between them the relation of joint venturers, and an
agreement between two or more persons that each shall contribute a certain sum of
money toward the purchase of articles or personal property, for which a joint bid is
to be made, but the separate articles of which, if the bid shall have been accepted,
are to be distributed and owned by them in severalty, does not constitute a joint
venture." 9
The standard joint venture model ordinarily involves a landowner
contributing his property, and a developer contributing the development funds and
expertise in developing the condominium or subdivision project. Upon the
completion of the condominium or subdivision project, an agreed portion of the
finished units or subdivision lots are assigned to each co-venturer for eventual
resale to third parties. In the instant case, the Subject Property was purchased on
installment from the Fort Bonifacio Development Corporation by GW, acting as
trustee in behalf of the Clients. Thereafter, upon the completion of the Project, to
each Client was conveyed their respective condominium unit.
TAacCE
parties. Each client has entered into a separate Contract with GW but did not
contract with each other. GW, however, did not and does not assume the role of
developer and hence has not made any representation that it is, in its own capacity,
selling the units comprising the Project. It was hired the project manager for which
it charged a professional fee from each Client. Thus, the elements of joint venture
are not present in the instant case.
In consideration of the foregoing, this Office is constrained to adopt the
same treatment applied in Parque Espana and Penhurst rulings to Kensington
Project. Indeed, while all three projects have consistently adopted the Private
Ownership Community Model/BTO System, the BTO System in Kensington
Project was treated as a joint venture which treatment was not in accordance with
the parties' intention.
It must be emphasized, however, that notwithstanding this recommendation,
all the BIR rulings mentioned will nonetheless undergo review by the BIR Ruling
Review Committee. The Committee will further deliberate and discuss the true
characterization of BTO System.
2. The conveyance of condominium units by the Trustee to the individual
Trustors pursuant to the terms of the Contract and without consideration is not
subject to capital gains tax/regular income tax, VAT nor to DST imposed under
the Tax Code of 1997, as amended.
In the implementation of BTO System in the Kensington Condominium
Project, each Client contractually engaged the services of GW to manage and
execute the development of the Project, and in connection thereto, to execute acts
on behalf of and for collective benefit of the Clients; and finally, to convey the
finished units to each client. Hence, GW was appointed as attorney-in-fact to
purchase the land for and on clients' collective behalf. Realizing, further, that it
would be cumbersome and administratively difficult for all the Clients to be named
as owners of the Subject Land and the Project, GW was also appointed as Trustee
for the purpose of allowing GW to hold title to the Subject Land and consequently,
for Client's collective benefit, in proportion to their respective interests in the
Project. Each Client entered into a separate Contract with GW but did not contract
with each other.
While GW holds legal title to the Subject Land and the Project, it merely
does so in the capacity of a trustee. It is noted also that the payment received by
GW from its Clients-Trustors was in the nature of professional fee (i.e., the
equivalent of a percentage of each Client's total construction funding
contributions) as project manager.
In short, Clients-Trustors are the real owners of the Kensington Place
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Condominium Project, the fund for the acquisition of the Subject Land and
construction thereof being provided by them. Conclusively, each individual
Client-Trustor is the beneficial owner of a pro-indiviso, pro-rata share in the
condominium units, held collectively with other Clients-Trustors.
Consequently, the conveyance of said condominium units by Trustee GW
to its Clients-Trustors, without consideration, would not be subject to either the
capital gains tax or the creditable withholding tax imposed under the Tax Code of
1997, as amended, and as implemented by Revenue Regulations No. 2-98, as
amended. Nor to the value added tax imposed under Section 106 of the same Tax
Code. Neither would it be subject to the 1.5% documentary stamp tax imposed
under Section 196 of the same Code. However, each conveyance shall be subject
to the documentary stamp tax on certificates in the amount of Fifteen Pesos
(PhP15.00) imposed by Section 188 of the Tax Code of 1997, as amended.
3. The conveyance of the Common Areas of the Project by the Trustee to
the Condominium Corporation is not subject to capital gains tax and documentary
stamp tax on deeds of sale and conveyance of real property imposed by Section
196 of the Tax Code of 1997, as amended.
The conveyance of common areas in a condominium project to the
Condominium Corporation made by the Trustee and without any consideration is
not subject to capital gains tax imposed under Section 27 (D) (5) of the Tax Code
of 1997, as amended, nor to the DST on deeds of sale and conveyance of real
property imposed under Section 196 of same Code. Moreover, said conveyance
being made in compliance with the requirements of R.A. 4726 (The Condominium
Act), purposely, for the management of the Project for the common benefit of the
unit owners, who likewise hold a percentage share of the common land on which
the condominium building stands and the common areas and appurtenances of said
condominium building, and without consideration since no income therefrom
would be generated by the Trustee, is not subject to capital gains tax or creditable
withholding tax. However, it is subject to the documentary stamp tax on
certificates in the amount of Fifteen Pesos (Php15.00) imposed under Section 188
of the Tax Code of 1997, as amended.
This ruling is being issued based on the foregoing facts as represented.
However, if upon investigation, it shall be disclosed that the facts as represented
are different, this ruling shall be considered null and void.
cSTHaE
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Endnotes
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Please see Revenue Memorandum Circular No. 055-10 circularizing the
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