In re: Tax Implication of the Sale of Hilaga Property, the proceeds of which

are held in trust by TIEZA in favor of the Tourism Promotions Trust

This pertains to the sale of the Hilaga Property, a previously operating entity
of TIEZA. The said sale was subjected to Value Added Tax pursuant to
Revenue Regulation No. 4-07. However, although this was subjected to VAT,
TIEZA did not consider the same as income, instead recognizing the sale as
a liability. This is pursuant to Section 54 of Republic Act No. 9593:

xxx SECTION 54. Tourism Promotions Trust. – Within

one hundred and twenty (120) days from the
effectivity of this Act, an audit shall be conducted
by the Commission on Audit to determine the true
value of the assets and liabilities of the PTA. After
such audit, the TIEZA and the Department, in
coordination with the Privatization Council, shall
determine which assets shall be put up for sale or
lease; xxx

The Tourism Promotions Trust (TPT) shall hereby

be established from the proceeds of the sale or
lease of the assets of the PTA. The Trust shall be
managed by a government-owned bank or
financial institution selected by the Tourism
Board. Said bank or institution shall report the status
and profitability of the trust on a quarterly basis to the
Tourism Board, the Secretary and the Joint
Congressional Tourism Oversight Committee created
under this Act .xxx

1. Implied trust was created when TIEZA sold the Hilaga Property and
held the proceeds in trust for the Tourism Promotions Trust (TPT).

Article 1453 of the Civil Code defines implied trust in the following
manner, among others:
 xxx Article 1453. When property is conveyed to a
person in reliance upon his declared intention to
hold it for, or transfer it to another or the grantor,
there is an implied trust in favor of the person
whose benefit is contemplated. xxx

The proceeds of the sale was conveyed to TIEZA’s account in reliance

upon TIEZA’s declared intention to hold it for and transfer it to the Tourism
Promotions Trust. Hence, there is an implied trust created in favor of Tourism
Promotions Trust whose benefit is contemplated. In the said established
implied trust, TIEZA is the implied trustee/fiduciary and TPT is the implied
beneficiary.

2. Proceeds of Hilaga Property sale is not considered as income on the

part of TIEZA, hence must not be included in the computation of
income tax.

In order to be considered as income, there must be a flow of wealth or

gain on the part of the taxpayer as defined under Section 36 of Revenue
Regulations No. 02-40:

xxx income is “all wealth which flows into the taxpayer

other than as a mere return of capital. It includes the
forms of income specifically described as gains and
profits, including gains derived from the sale or other
disposition of capital assets.”

Thus, the sale of Hilaga Property is neither a gain not a profit but is
treated as trust liability to Tourism Promotions Trust, since TIEZA has the
obligation to remit the proceeds after deducting all the cost directly
attributable to said sale. Ergo, not being an income realized by TIEZA, said sale
should not be included in the computation of income tax.

3. Tax Implication of Implied Trust created

The current rules on the taxation of trusts are embodied in BIR Ruling No.
003-05 (July 22, 2005). In Ruling No. 003-05, the BIR makes a distinction
between a revocable or irrevocable trust which receives differential tax
treatment. According to said ruling, an irrevocable trust is treated as a separate
and distinct taxable entity from the person/s or parties that established the
trust. Consequently, an irrevocable trust is subject to any applicable taxes on its
investment income as well as its investors, if and when the trust income is
subsequently distributed to them.

NIRC, CHAPTER X, ESTATES AND TRUSTS

SEC. 60. Imposition of Tax. -
(A) Application of Tax. - The tax imposed by this Title upon individuals shall
apply to the income of estates or of any kind of property held in trust,
including:
(1) Income accumulated in trust for the benefit of unborn or unascertained
person or persons with contingent interests, and income accumulated or held
for future distribution under the terms of the will or trust;
(2) Income which is to be distributed currently by the fiduciary to the
beneficiaries, and income collected by a guardian of an infant which is to be
held or distributed as the court may direct; (3) Income received by estates of
deceased persons during the period of administration or settlement of the
estate; and (4) Income which, in the discretion of the fiduciary, may be either
distributed to the beneficiaries or accumulated.
xxx
(C) Computation and Payment. - (1) In General. - The tax shall be computed
upon the taxable income of the estate or trust and shall be paid by the
fiduciary, except as provided in Section 63 (relating to revocable trusts) and
Section 64 (relating to income for the benefit of the grantor).
xxx
SEC. 61. Taxable Income. - The taxable income of the estate or trust shall be
computed in the same manner and on the same basis as in the case of an
individual, except that:
(A) There shall be allowed as a deduction in computing the taxable income
of the estate or trust the amount of the income of the estate or trust for the
taxable year which is to be distributed currently by the fiduciary to the
beneficiaries, and the amount of the income collected by a guardian of an
infant which is to be held or distributed as the court may direct, but the
amount so allowed as a deduction shall be included in computing the
taxable income of the beneficiaries, whether distributed to them or not.
Any amount allowed as a deduction under this Subsection shall not be allowed
as a deduction under Subsection (B) of this Section in the same or any
succeeding taxable year.
(B) In the case of income received by estates of deceased persons during the
period of administration or settlement of the estate, and in the case of income
which, in the discretion of the fiduciary, may be either distributed to the
beneficiary or accumulated, there shall be allowed as an additional
deduction in computing the taxable income of the estate or trust the
amount of the income of the estate or trust for its taxable year, which is
properly paid or credited during such year to any legatee, heir or
beneficiary but the amount so allowed as a deduction shall be included in
computing the taxable income of the legatee, heir or beneficiary.
xxx
SEC. 65. Fiduciary Returns. - Guardians, trustees, executors, administrators,
receivers, conservators and all persons or corporations, acting in any
fiduciary capacity, shall render, in duplicate, a return of the income of the
person, trust or estate for whom or which they act, and be subject to all
the provisions of this Title, which apply to individuals in case such person,
estate or trust has a gross income of Twenty thousand pesos (P20,000) or over
during the taxable year.
Such fiduciary or person filing the return for him or it, shall take oath that he
has sufficient knowledge of the affairs of such person, trust or estate to enable
him to make such return and that the same is, to the best of his knowledge and
belief, true and correct, and be subject to all the provisions of this Title which
apply to individuals: Provided, That a return made by or for one or two or more
joint fiduciaries filed in the province where such fiduciaries reside; under such
rules and regulations as the Secretary of Finance, upon recommendation of the
Commissioner, shall prescribe, shall be a sufficient compliance with the
requirements of this Section.
SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. - Trustees,
executors, administrators and other fiduciaries are indemnified against the
claims or demands of every beneficiary for all payments of taxes which
they shall be required to make under the provisions of this Title, and they
shall have credit for the amount of such payments against the beneficiary
or principal in any accounting which they make as such trustees or other
fiduciaries.

4. TPB Exemption from payment of Corporate Income Tax:

RA 9593, SECTION 57. Exemption From Payment of Corporate Income Tax.
– Notwithstanding any provision of existing laws, decrees, executive orders to
the contrary, the TPB shall be exempt from the payment of corporate
income tax, as provided under the National Internal Revenue Code (NIRC)
of 1997, as amended.