BIR Ruling [DA-023-04]

January 15, 2004 BIR RULING [DA-023-04] 27; 57 (B); 188 DA-375-2003 Ocampo & Ocampo 11th Floor, Equitable Bank Tower 8751 Paseo de Roxas 1226 Makati City Attention: Attys. Miguelito V. Ocampo and Laura Love P. Guevara Gentlemen : This refers to your letter dated December 1, 2003 requesting on behalf of your client Nema Electric Co.,Inc. ("Nema") ,for a confirmation of your opinion that the conveyance, assignment or transfer of the common areas of a condominium project, including the land on which the condominium is built, is exempt from the payment of income tax, creditable withholding tax, capital gains tax, documentary stamp tax and value added tax. The facts as represented, are as follows: 1. Nema is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is the registered owner of a piece of real property located at No. 506 Calbayog St.,Mandaluyong City which property is covered by Transfer Certificate of Title No. 3593 of the Register of Deeds of Mandaluyong (the Title) with an aggregate area of 431 square meters. In 1991, Nema constructed a seven-storey building in the said property. The first three floors of the building is being used as offices of Nema. The fourth and sixth floors are being used for residential purposes, while the fifth and seventh floors are currently unoccupied; 2. In 2002, Nema filed petition with the Housing and Land Use Regulatory Board (HLURB) for the conversion of the whole building into a condominium project and in 2004, the HLURB approved the conversion of the building into a condominium project: 3. In accordance with the provisions of Republic Act No. 4726, otherwise known as the Condominium Act, Nema organized and established the Nema Condominium Corporation, a non-stock non-profit corporation formed and organized for the purpose of holding title to the land and other common areas of the Condominium Project. Nema likewise as Project Developer submitted to the HLURB a copy of the Deed of Restrictions of the Nema Condominium Corporation. Pursuant to and in compliance with the provisions of the Condominium Act, Nema is intending transfer, assign and convey in favor of the Nema Condominium Corporation all the common areas including the land on which the condominium project stands without any monetary or financial consideration. In reply, please be informed as follows: 1. The intended transfer and conveyance of the subject real property to be made without any monetary consideration and not in connection with a sale to Nema Condominium Corporation is not subject to creditable withholding tax since no income will be generated therefrom. In view thereof, this Office is of the opinion as it hereby holds that the proposed transfer and conveyance of the subject property in favor of Nema Condominium Corporation is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) in relation to Section 27(A) and (D)(5), all of the Tax Code of 1997. ( BIR Ruling No. DA-164-98 dated April 22, 1998 ) TAaCED 2. If Nema Condominium Corporation will sell the aforesaid subject properties, the said sale shall be subject to the 6% final tax imposed under Section 27(D)(5) of the Tax Code of 1997. 3. 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." Thus, it is neither subject to the documentary stamp tax nor value-added tax imposed under Section 196 and 105, both of the Tax Code of 1997. However, the notarial acknowledgment upon the execution of a Deed of Transfer or Conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. DA-184-2001 dated October 10, 2001 ) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service