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Five years ago, I and my siblings co-owned a parcel of land in Quezon City. A corporation bought said parcel of land from ours in exchange of 20 million. We acknowledged the corporation's prior payment of 5 Million, and further agree that a 15 million is still owed. The Corporation (now debtor) constructed a condominium on said parcel of land, and now wishes to exercise the option to pay the balance in form of condominium units and parking spaces (a Dacio En Pago transaction). We (now creditor) agreed to be paid in said manner; however, we further requested that said condo units and parking spaces be transferred and conveyed directly to our sons & daughters (HEIRS).
In view thereof, Deeds of Assignment were executed, the debtor corporation, conveying twelve condominium units and five parking spaces in favor of the heirs. The total zonal value of the conveyed real properties amounted to 15 million. Taxes were paid (CWT, DST, Local Transfer Tax). And said transactions were filed before the BIR for issuance of Certificate Authorizing Registration. Upon review, the BIR is now assessing the transaction for Donor's Tax. This is because, following the flow of the land purchase transaction, the Deed indicates that there was a donation of the condo units and parking spaces from the Creditor to the Heirs, hence, donor’s tax is due, plus interest, surcharge, and penalties because of late payment.
We do not have any money to pay for Donors Tax. Thus, in order to avoid Donor’s Tax, we are guided to enter into a Novation Agreement, where there is a transfer to the heir of all rights and benefit appertaining to the creditor, particularly transferring the privilege to be paid by the debtor corporation. If we use said Novation Agreement to avoid Donor's Tax, will it prosper?
In view thereof, Deeds of Assignment were executed, the debtor corporation, conveying twelve condominium units and five parking spaces in favor of the heirs. The total zonal value of the conveyed real properties amounted to 15 million. Taxes were paid (CWT, DST, Local Transfer Tax). And said transactions were filed before the BIR for issuance of Certificate Authorizing Registration. Upon review, the BIR is now assessing the transaction for Donor's Tax. This is because, following the flow of the land purchase transaction, the Deed indicates that there was a donation of the condo units and parking spaces from the Creditor to the Heirs, hence, donor’s tax is due, plus interest, surcharge, and penalties because of late payment.
We do not have any money to pay for Donors Tax. Thus, in order to avoid Donor’s Tax, we are guided to enter into a Novation Agreement, where there is a transfer to the heir of all rights and benefit appertaining to the creditor, particularly transferring the privilege to be paid by the debtor corporation. If we use said Novation Agreement to avoid Donor's Tax, will it prosper?
