Tax Implications on Assignment of Condominium to Land Bank

1. Transfer is not subject to the 5% Gross Income Tax.

In one of its most recent rulings (Ruling No. 291-2012 issued on April 25, 2012), a
Philippine Economic Zone Authority (PEZA)-registered company, enjoying both 5% gross
income tax and income tax holiday, sold its fixed assets used for its PEZA-registered
activities such as buildings, machinery and installations as well as production and
commercial inventories used in its projects due to worldwide restructuring and transfer
of business between related companies. The sale was made to another PEZA-registered
company. The PEZA-registered company sought exemptions from (1) regular rate of
income; (2) VAT and documentary stamp tax; and (3) creditable withholding tax in
relation to the said sale of fixed assets.
The BIR, however, denied such request for lack of legal basis. The bureau held that,
though the company is a PEZA-registered company, the sale of fixed assets is not
included in its registered activity. Thus, inasmuch as the preferential tax rate/s should
apply only to registered activities and that sale of fixed assets is not part of its registered
activities hence, the sale should be subject to normal income tax rate.
In the rulings issued in previous years, the BIR affirmed that the sale made by a PEZA-
registered company of its assets that were used in its PEZA-registered activities is
governed by the provisions of Republic Act No. 7916, as amended, otherwise known as
the Special Economic Zone Act of 1995. The BIR had also ruled that the sale of assets
by a PEZA-registered enterprise, in the course of winding up its business, is subject to
the 5% gross income tax. Subsequently, the BIR ruled that if such incentive is available
to PEZA-registered enterprise which is winding up its registered business, then it stands
to reason that the sale of assets by a PEZA-registered enterprise, operating on a going-
concern basis, is also subject to the special income tax regime.
2. Execution of a Deed of Assignment from Hanjin to RCBC Trust and in turn from
RCBC Trust to Land Bank (condominium bldg. and leasehold rights, respectively) is
exempt from capital gains tax nor creditable withholding tax, VAT and DST.
It is proposed that Hanjin will execute a Deed of Assignment in favor of RCBC Trust
which will hold the properties in trust for the consortium of banks. However, some of the
properties, namely the condominium bldg. and leasehold rights, will be further conveyed
by RCBC Trust in favor of Land Bank. The other banks in the consortium has agreed to
waive their rights in the said properties.

In the recent BIR Ruling No. 051-2015 date February 24, 2015, the BIR held that the
transfer of title of the properties by the trustee in favor of the beneficiary is not subject
to capital gains tax nor to the creditable withholding tax, considering that the conveyance
is not motivated by a valuable consideration and merely acknowledges, confirms, and
consolidates the legal title and beneficial ownership over the properties in the name of
the trustor.
The transfer is not likewise subject to VAT because the property is not held primarily for
sale in the ordinary course of trade or business. Also the conveyance is without monetary
consideration, the same is not subject to DST.

In this case, it can be argued that the proposed assignment from Hanjin, the trustor, to
RCBC Trust, the trustee and subsequently from RCBC Trust to Land Bank, one of the
beneficial owner can be exempt from capital gains tax, provided that the waiver of the
other banks who are also beneficial owners is not motivated by a valuable consideration.

3. Imposition of all taxes and fees including penalties, interests and charges thereof due
to the national government or to LGUs shall be considered waived.
Under Section 19 of Republic Act No. 10142 (Financial Rehabilitation and Insolvency
Act (FRIA) of 2010), declares that, upon the issuance of the Commencement Order, up
to the approval of the Rehabilitation Plan or the dismissal of the petition, whichever is
earlier, the imposition of all taxes and fees, including penalties, interests, and charges,
due to the national government and the local government unit, shall be considered
waived, in the furtherance of the objectives of rehabilitation.
It can be inferred from the foregoing provision that all taxes, which includes the capital
gains tax from any transfer of properties, to be imposed or incurred from the issuance
of the Commencement Order until up to the approval of the Rehabilitation Plan or
dismissal of the petition, whichever is earlier, shall be considered waived.