Transfers of proprietary club shares between nominee or trustee officers will not be subject to capital gains, documentary stamp or donor's taxes, the Bureau of Internal Revenue (BIR) said, provided that corporations remain the beneficial owners and comply with documentary requirements.
Revenue Memorandum Circular (RMC) 72-2026 addresses long-standing questions surrounding the tax treatment of proprietary club shares held under nominee or trust arrangements, BIR chief Charlito Martin Mendoza said.
“Clearer rules lead to more efficient tax administration and greater peace of mind for taxpayers,” he said on Wednesday.
“By clarifying the proper tax treatment of these transactions and removing the need for a prior confirmatory ruling, we are reducing unnecessary administrative burden while ensuring that compliance continues to be verified through post-audit.”
Mendoza said that many corporations acquire proprietary club shares, such as memberships in exclusive clubs, to allow their officers access to club facilities. Since the by-laws of many clubs require ownership to be registered under the name of a natural person, companies typically register the shares under an officer acting as a nominee or trustee.
When an officer retires or is replaced, the legal title to the share is transferred to another nominee. Prior to the RMC issuance, taxpayers commonly sought confirmatory rulings from the BIR to establish that the transfers were not subject to taxes.
The circular clarified that such would be considered as mere changes in legal title and not transfers of beneficial ownership, provided the corporation remains the true owner of the shares.
The BIR said the transactions were not subject to capital gains tax because there was no sale, exchange or other disposition involving beneficial ownership of the property.
However, the existence of a trust arrangement must be supported by evidence, including a duly executed trust agreement or other documents showing that the nominee merely holds the share for the corporation's benefit.
The corporation must also prove that it paid for the proprietary club share, recorded it as a corporate asset in its books nd that the nominee has no personal beneficial interest in the share.
The BIR likewise clarified that transfers meeting these conditions were not subject to documentary stamp tax.
Since transfers between outgoing and incoming nominees do not involve any change in beneficial ownership, no new taxable conveyance arises.
Similarly, the transactions are not subject to donor's tax because they do not involve a gratuitous transfer of property.
The circular explained that a donation requires a reduction in the donor's patrimony, a corresponding increase in the donee's patrimony and an intent to make a gift, or animus donandi.
"There is no depletion of the corporation's patrimony nor corresponding enrichment of the nominee," the BIR said.
Apart from clarifying the tax treatment, the BIR also removed the requirement for taxpayers to secure a prior confirmatory ruling before transferring proprietary club shares under nominee or trust arrangements.
Taxpayers may directly apply for an electronic Certificate Authorizing Registration with the revenue district office that has jurisdiction over the issuer of the proprietary club share, subject to documentary requirements and post-audit verification.
The move, the BIR said, is intended to reduce unnecessary regulatory burden and is consistent with the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.
To qualify for the tax treatment, corporations must remain the beneficial owners of the shares, execute a declaration of trust or trust agreement, record the shares as corporate assets and ensure that the transfer is made without any monetary or non-monetary consideration to the nominees.
Meanwhile, pending applications for confirmatory rulings involving such transfers will no longer be acted upon.