BIR Ruling [DA-010-04]

January 7, 2004 BIR RULING [DA-010-04] R.A. 4726 DA-145-2003 Villaraza and Angangco Law Offices 5th Floor, LTA Bldg., 118 Perea St. Legaspi Village, Makati City Attention: Atty. Ma Victoria O. Llenos-Flauta Gentlemen : This refers to your letter dated December 12, 2003 requesting on behalf of your client, Palladium Properties, Inc., (Palladium for brevity) for a confirmation that the conveyance of the common areas of the condominium project known as the MDB Building (the "Condominium Project") by Palladium in favor of MDB Condominium Corporation (the "Condominium Corporation") is exempt from the payment of income, creditable withholding, capital gains, value-added and documentary stamp taxes. It appears that Palladium is the owner-developer of a parcel of land with an aggregate area of approximately two hundred sixty four (264) square meters located at the corner of Makati Avenue and P. Burgos Street, Makati City, covered by Transfer Certificate of Title (TCT) No. 207153 (the "Subject Property")' upon which the Condominium Project was constructed. On the other hand, the Condominium Corporation, a non-stock, non-profit domestic corporation was formed and organized for the purpose of holding title to, managing and maintaining the common areas of the aforesaid Condominium Project. Palladium executed a Deed of Conveyance transferring all its rights, interests and participation in and to the common areas of the building and facilities of the Condominium Project to the Condominium Corporation, free from any and all liens and encumbrances and without any monetary consideration, pursuant to the provisions of the Condominium Act and the Master Deed with Declaration of Restrictions of Palladium, which mandates that the condominium corporation shall hold title to the common areas. Further, all the units in the MDB Building have been effectively transferred to, and titled in the name of Blue Properties, Inc. (Blue Properties for brevity) and Mindanao Development Bank (MDB). The said transfers have been either subject to the appropriate taxes or have been declared exempt from the payment of such. In reply, please be informed that since the Deed of Conveyance was made without consideration and is not in connection with a sale made to MDB Condominium Corporation, no taxable income will be generated and a fortiori , no creditable withholding tax is payable and collectible. The purpose of the conveyance to MDB Condominium Corporation is for the management of the project for the common benefit of the unit-owners. (Section 10, R.A. 4726) Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." In view thereof, this Office is of the opinion as it hereby holds that the aforesaid transaction is not subject to the creditable withholding tax prescribed by Section 2.57(B) of Revenue Regulations No. 2-98, implementing Section 57(B), in relation to Section 27 of the Tax Code of 1997. Neither is it subject to the documentary stamp tax imposed under Section 196 of the same Code. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. AECDHS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service