RMC No. 72-2026 — Clarifying the Tax Treatment of Transfers of Proprietary Club Shares held under Nominee or Trust Agreements, Dispensing with Prior Confirmatory Ruling Subject to Post-Audit Verification Digest | Full Text

z REPUBLIC OF THE PHILIPPINES a DEPARTMENT OF FINANCE = BUREAU OF INTERNAL REVENUE Bringing ln Revenues for Nation-Building BACONC PIL'PINAS 0l L- REVENUE MEMORANDUM CTRCULAR No. 2 026 SUBJEC]T Clarfuing the Tax Treatment of Tranders oJ Proprietary Club Shares Held Under Nominee or Trust Agreements, Dispensing with Prior Confirmatory Ruling Subject to Post-Audit Verification TO : All Internal Rct,enue O.f/icials, Employee,s and Other.s C'oncernetl DA'I'E 0 JUN 3 2020, I. BACKGROUND Many corporations acquire proprietary club shares (e.g.. Manila Polo Club shares) to provide their officers with access to club facilities. Since these proprietary club shares typically require that owrrership be registered in the name of natural persons, corporations register these shares in the name of a "nominee" or "trustee" officer. Upon the officer's retirement or replacement. the legal title is transferred to a new nominee. Historically. taxpayers sought confirmation from the Bureau of Internal Revenue (BIR) rulings for such transf'ers to conflrm that these are not sub.iect to capital gains tax (CGT). documentary stamp tax (DSI') and donor's tax. This Circular shall apply only to transfers of shares under nominee or trustee arrangements in which the corporation is the established beneticial owner of tlie shares. as suppofted by contemporaneous documentary evidence and consistent accounting treatment recognizing the shares as corporate assets. II. TAX TREATMENT Pursuant to established.f urisprudence and existing tax regulations. the BIR clarifies the following: The transfer is not subject to CGT A trust is a legal relationship between one person who holds equitable ow,nership of proper-ty and another person wlio holds the legal title to such property, the equitable ownership of the lormer entitling him to the performance of certain duties and the exercise of certain powers by the latter.l A declaration of trust has been defined as an act by which I Efiaim D. Daniel v. Nancy o. Magkaisa et al.. G.R. No. 203g15. 07 December 2020. 00 &$^&iJ** ErtcUoittDul I JUil 3 2026 BIR National Office Bldg., Senator Miriam Defensor-Santiago Avenue, Dilingp ;?, s;tty Website: www. bi r.gov. ph Trunkline: 8981 -7000 ; 8929-7676

a person acknowledges that the property- title to which he holds, is held by him fbr the use of another.2 In the case of Sirre Durbv Pilipinu.s. Inc'. t,. Mendoza.t Sirne Darby acquired a Class '"A'' club share in Alabang Country Club (ACCI) in 1987. but being a corporation. which was expressly disallorved by ACC's lly-Laws to acquire and register the club share under its name. registered thc share underthe name of respondent Mendoza. Sime Darby's sales manager at the time. 'I'lre Supreme Court held that a trust arrangement existed between Sirne Darby and Mendoz.aand ivhile the share rvas bought by Sirne Darby and placed under the namc of Mendoza. the latter's title was on11, limiled to the use and enioyment ol. the club's lacilities and privileges while crnployed u,ith the company. AccordinglY. thrc transf-er of legal title fiom one nominee-trustee to another shall not be sub.iect to CGT under Section 24(B)(3) of the National Internal Revenue Clode of' 1997. as amended (Tax Code)- provided that there is no sale. exchange. or other disposition involving the transf-er of beneficial ownership, and the trustor-corporation remains to be the beneficial owner of the share. rvith the transfer constituting merely a change in legal title that does not alter the economic ownership. control. or enjoyment of the share. The existence of a trust arrangement must be established by clear and convincing evidence. such as a duly executed trust agreement or other contemporaneous documentation shorving that the nominee merelv holds the share l'or the benefit of the corporation. including proof that the consideration fbr the share was paid by the corporation. recogttition of the share as a corporate asset in its books, and the absence of any personal bencficial interest on the part of the nominee. The Tronsfer is not subject to DST The transfer shall not be subject to DST under Section 175 of the Tax Code, provided that there is no transfer of beneficial ownership and the trustor-corporation remains to be the beneficial owner of the share, consistent with the principle that DST is imposed only on documents evidencing a transfer of ownership or rights oithe exercise of a taxable privilege. The rule is that the assignment of shares of stock of a domestic corporation is subject to DST upon execution of a deed transferring ownership or rights thereto, or upon delivlry, assignment or indorsement of such shares in favor of another. Revenue Regulations (RR) No. l3-2004+ qualified this rule by stating that fbr a sale or exchange to be taxable. there must be an actual or constructive transfer of beneficial ou'nership of the shares of stock from one person to another. Section 4 of RR No. l3-200,1 provides. to wit: 2 Resurreccion de Leon, et al. v. Emiliana Molo-Peckson, et al., G.R. No. L-17g09, 29 December 1962. 3 G.R. No. 202247,1g June 2013. a Implementing the Provisions of Republic Act No. 9243, An Aa Rationalizing the provisions on the Documentary Stamp Tax of the National Intemal Revenue Code of 1997, as Amended, and for Other purposes dated December 23,2004. 00 0 (il 1 ' ,' OLtfxIXeTGEtRyIt'xATI RDEVlvElH9UoEr JUil 3 C 2026 BY: t.; jrif ADMIX UN tT-2 .TIME:

"SECTION 4. New Rate of DST on Sales, Agreements to Sell, Memoranda of Sales, and Subsequent Transfer of Shares of - Stocks. .r-{x LT.r .x"Ylr For a sale or exchange to be taxable, there must be an actual or constructive transfer of beneficial ownership of the shares of stock from one person to another. Such transfer may be manifested by the clear exercise of attributes of ownership over such stocks by the transferee, or by an actual entry of a change in the name oppearing in the certificate of stock or in the stock and Transfer Book of the issuing corporation or by any entry indicating transfer of beneficial ownership in anyform of registry including those of a duly authorized scripless registry, such as Hthoowseevmear,initfaibnyedthfeortroonrsbfeyr the phitippine stock Exchange. of certiJicotes of stock from o resigned trustee to o newly appointed trustee such certiJicate of stock remoins in the nome of the cestui que trust or the resigned trustee so that the new truslee is conslituted as mere depository of the slock, such transfer is not taxable. provided, however, that transfer of shares to 'nominees' to qualifu them to sit in the board or to qualify them to perform any act in reration to the corporation shall not be subject to the DST provided herein only upon proof of a duly executed Nominee Agreement showing the purpose of the transfer; that the transfer is without consideration other than the undertaking of the nominee to only represent the beneficial owner of the stock; and the transfer is in trust. " (Emphasis and underscoring supplied) In view thereof, the transfer shall not be subject to DST as there is no transfer or conveyance of the beneficial ownership or any right, claim or interest over the share. There being no new conveyance to speak of, there is no new exercise of a privilege upon which DST may be imposed. The Tronsfer is not subject to Donor,s Tax Article 725 of the New Civil code describes donation as fbllows "Article 725. Donation is an oct of liberality whereby a person disposes gratuitously of a thing or right infavor of anothir, who accepts il. " Donation has three indispensable elements: (l) the reduction of the patrimony of the donor; (2) the increase inthe patrimony of the donee; and (3) the intent to do an act of Iiberality or animus donandi.s 5 Dioscoro Polifro Bacala v. Heirs of Spouses Juan Polifro and corazon Rom. G.R. No. 20060g. l0 Februarv 2021 00000357 BUREAU OF IlTTERtrAL REVETUE llGOlD,3 UATAG t u I xT UYltlOx JUN 3 e 2026 BY: U{ UN i:git-

In the context of nominee arrangements over proprietary club shares, the third element is conspicuously absent. Corporations corlmonly acquire proprietary club shares to provide their offrcers with access to club facilities. Since proprietary club shares' by- laws restrict registered ownership to naflual persons, the corporation, as the true and beneficial owner, holds these shares as company assets but register them in the name of a "nominee" or "trustee" officer. In such an arrangement, the corporation parts with neither ownership nor beneficial owriership. Clearly, there is no intentibn to donate the subject share in favor of a "nominee" or "trustee". Accordingly, in the absence of animus donandi and where the corporation remains the beneflcial o'mer, there is no gratuitous transfer subject to donor's tax under Section 98 of the Tax Code, there being no depletion of the corporation's patrimony nor corresponding enrichment of the nominee. III. RULING REQUIREMENT In the interest of reducing unnecessary regulatory burden and consistent with the Ease ofDoing Business and Efficient Govemment Service Delivery Act of 2018 (Republic Act [RA] No.t tOfZl, the Bureau hereby diipenses with the requirement of securing a prior confirmatory ruling for the transfer of proprietary club shares held under a nominee or trust arrangemen! without prejudice to the Bureau's authority to conduct post-audit verification to determine compliance with applicable tax laws and regulations, and subject to the application of the substance-over-form doctrine and other anti-tax avoidance principles, provided that for such transfer the following conditions are strictly met: 1. The corporation remains the beneficial owner; 2. The transfer is documented by a Declaration of Trust or Trust Agreement; Ja. The share is recorded as a corporate asset in the company's books; and 4. The transfer is made without any monetary or non-monetary consideration, directly or indirectly, in favor of the outgoing or incoming nominee. Any misrepresentation or failure to comply with the foregoing conditions shall subject the transaction to the applicable taxes, penalties, and surcharges under the Tax Code and existing revenue issuances, including possible recharacterization of the transaction based on its true nature. IV. COMPLIANCE FOR CCAR ISSUANCE Tanpayers or their duly authorized representatives may file an application for the issuance of an electronic Certificate Authorizing Registration (eCAR) directly with the Revenue District Office (RDO) having jurisdiction over the issuer of the share. The application shall be initiated through the formal submission of a complete set of documentary requirements to the One-Time Transaction (ONETT) Section of the RDO, to wit: 000 00357 v BUREAU Of INTERNAT REVENUE nEcoRD3 UAXAGtMtXT UW3IOX n JUN 3 C 2020 t BY: ur uNtT - 2 ( IIME: -1d3-er

I . Notarized Deed of Assignment/Transfer executed between the oulgoing and i ncorn i ng norn i nee-trustees; 2. original Declaration of Trust or Trust Agreement covering the outgoing nominee. and a new Declaration of Trust or Trust Agreement covering the incoming nominee: 3. Prool' that the corporation paid fbr the slrare and that it is carried apd mairrtained as a corporate asset in the company's books of accounts: and 4. Secretary,'s Certificate or Board Resolution confirming that the transfer is without monetary consideration and does not involve transf-er of beneficial or.l,nership over the slrare. J'he cortcerned RDO shall conduct a completeness check of the submitted documents rvithin the prescribed timelines under RA No. 11032. and process the appl ication accordingly, witliout prej udice to post-aud it veri fi cation. V. PENDING APPLICATIONS FOR RULING All applications fbr confirmatorv ruling pertaining to the transfbr of proprietarv club shares held under a nominee or trust arrangement that are currently pending belore the B IR shall no longer be acted upon. The applicants in such pending cascs may proceed directly to the RDO having.iurisdiction over the transaction lor the processing of the eCtAR" subiect to cornpliance with the documentary requirements and conditions prescribed uniler this Circular. l'his Circular shall take eflect imrnediatelv All internal revenue olficials and employees are enioined to give this Circular as wide a publicitl,as possible. CHARLITO MARTIN R. (' om nt i.ss i oner of' lnlernal Re venue K- I -li'r 00000357 ).-. ) BUREAU OUFAINrATEGRtUTIAtrIrRDEVME!HOU|E \7{ RlcoRDE R JUN 3 C 2026 BY: l" U{ UN ),o4,* I