Chato & Vinzons-Chato

January 17, 2007 BIR RULING [DA-022-07] Secs. 24 (D); 27 (D) (5); DA 521-04 Chato & Vinzons-Chato 8th Floor, STRATA 2000 F. Ortigas Jr. Road Ortigas Center, Pasig City Attention: Atty. Wilfredo M. Chato Gentlemen : This refers to your letter dated October 23, 2006 stating that your client, Camarines Coco Industry, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 00056364 with an authorized capital stock of One Million Pesos (P1,000,000.00); that it has no liabilities to anyone except to its stockholders; that on March 6, 2006, at a Regular Meeting of the Stockholders of Camarines Coco Industry, Inc., the stockholders were informed by the Secretary about a Certification from the SEC dated February 28, 2006 stating that "Subject Corporation's Certificate of Registration was revoked on August 11, 2003 for non-compliance of reportorial requirements." that in the said morning, the stockholders were unanimous and determined to dissolve the corporation since its existence is not relevant anymore under present circumstances; that the Corporation's assets are well intact and well-protected and are very stable and viable to return all investments poured into by its stockholders; and that per Stockholders Resolution No. 002-2006, the fifteen (15) parcels of land shall be distributed as follows: For SALOME Z. TANG: of legal age, Filipino married to Jose King with residence at 11-D Araneta Avenue, Quezon City: 1. TCT No. T-23827 with an area of 248 square meters; 2. TCT No. T-23828 with an area of 319 square meters; 3. TCT No. T-23829 with an area of 319 square meters; For MYRNA TANG YAO: of legal age, Filipino married to Albert Yao with residence at Richwell Building, 25 Quezon Avenue, Quezon City: 1. TCT No. T-23830 with an area of 308 square meters 2. TCT No. T-23831 with an area of 306 square meters For EVELYN TANG UY: of legal age, Filipino married to Robert Uy with residence at Dipolog City: 1. TCT No. T-23832 with an area of 300 square meters 2. TCT No. T-23833 with an area of 300 square meters 3. TCT No. T-23834 with an area of 300 square meters For VIRGINIA Z. TANG: of legal age, Filipino married to Wilson Dy with residence at 1901-1902 Regina Garden II, 703 Reina Regente Street, Binondo Manila: 1. TCT No. T-23835 with an area of 300 square meters 2. TCT No. T-23836 with an area of 300 square meters For LUCIA Z. TANG: of legal age, Filipino, single with residence at 54 Scout Fernandez Street, Quezon City: 1. TCT No. T-23837 with an area of 300 square meters 2. TCT No. T-23838 with an area of 285 square meters 3. TCT No. T-23839 with an area of 179 square meters For RUBEN Z. TANG: of legal age, Filipino married to Zenaida Lo with residence at Vinzons Avenue, Daet, Camarines Norte: 1. TCT No. T-11204 with an area of 7,285 square meters 2. TCT No. T-11112 with an area of 10,000 square meters Based on the foregoing representations, you now request for a ruling on the tax consequences to the transfer of the above-mentioned properties by Camarines Coco Industry, Inc. to its stockholders as a result of its subsequent dissolution per Stockholders Resolution No. 002-2006. In reply thereto, please be informed that the above transfer of properties in favor of its stockholders as liquidating dividends is not subject to the corporate income tax imposed under Section 27 (A) or to the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as amended. The transfer by the liquidating corporation of its assets to its stockholders is not considered a sale of the assets. Thus, a liquidating corporation does not realize gain or loss in a partial or complete liquidation, and consequently, the liquidating corporation is not liable for income tax for said transaction. (BIR Ruling No. DA-521-04 dated October 6, 2004) On the other hand, pursuant to Section 189 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations", a conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax. Under this provision, a distribution in liquidation of the assets of a corporation consisting of real estate, without valuable consideration, is not subject to DST imposed under Section 196 of the Tax Code of 1997 as amended. The distribution of the assets of the corporation to its stockholder in liquidation of the business without consideration is viewed as a return of capital to the shareholders. Considering this, the provision of Section 196 of the Tax Code of 1997, as amended, shall not apply. Thus, it has been held that a corporation that distributes its assets to its shareholders as liquidating dividends is not deemed to be selling such assets to the latter. Accordingly, the transfer by Camarines Coco Industry, Inc. of the above-described properties to the stockholders, in proportion to their respective shareholdings, shall not be subject to DST imposed under said Section 196 of the Tax Code of 1997, as amended. The notarial certification on the deeds of transfer/assignment is, however, subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. Furthermore, the stockholders who sell the real properties received by them as liquidating dividends immediately after titles thereto are transferred to their names is subject to the final capital gains tax imposed under Section 24 (D) (1) of the Tax Code, amended, in the case of individual distributees and Section 27(D)(5) thereof, in the case of corporate distributees. Finally, since Camarines Coco Industry, Inc., from the time it was organized was never engaged in the sale of real properties, the transfer of the above-described properties in the form of liquidating dividends to its sole stockholders is not subject to value-added tax prescribed in Section 106 (B) (4) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, as implemented by Revenue Regulations No. 16-2005. (BIR Ruling No. DA353-03 dated October 10, 2003) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service