BIR Ruling [DA-031-01]

March 15, 2001 BIR RULING [DA-031-01] Le Mariche Homeowners' Association, Inc . No. 8 Scout Tuazon Quezon City Attention: Ms . Luisa A . Caleon Gentlemen : This refers to your letter dated August 22, 2000 requesting for a ruling that the conveyance by Mariche Development Corporation, developer/assignor, of the common areas, including the townhouse project known as the Le Mariche Subdivision to the Le Mariche Homeowners' Association. Inc., is exempt from the capital gains tax/creditable withholding tax and documentary stamp tax. It is represented that Mariche Development Corporation, a domestic corporation with address at No. 299 Del Monte Avenue, Quezon City, is engaged in the realty business; that it is the registered owner of seven (7) parcels of land located at Le Mariche Subdivision, Waltermart Center, E. Rodriguez Avenue, Quezon City, covered by TCT Nos. 80367, 80368, 80369, 80370, 80371, 80372 and 80373 all issued by the Registry of Deeds for Quezon City, with a total land area of 7,222 square meters; that Mariche Development Corporation is the owner/developer of a townhouse project located at No. 229 E. Rodriguez Avenue, Quezon City consisting of forty-one (41) Residential townhouse units designated as Le Mariche Subdivision; that on the other hand, the buyers-homeowners of the said townhouse project organized and formed a community association called Le Mariche Homeowners' Association, Inc. which is duly registered with the Home Insurance and Guaranty Corporation (HIGC) on August 16, 1994; and that Mariche Development Corporation having fully developed and completed the facilities and amenities of the said subdivision and for the purpose of maintaining and promoting the common safety and enjoyment of the townhouse unit owners, intends to assign, transfer and convey all its rights, interest and title over the aforementioned properties without any consideration. In reply, please be informed that since the Assignment of Rights is without consideration and is not in connection with a sale made to the Homeowners Association no income was generated and a fortiori, no creditable withholding tax is payable and collectible. In fact, the sales by Mariche Development Corporation of the townhouse units were made in favor of the individual unit owners of the townhouse project, and the purpose of the assignment to the Homeowners Association of its common areas and facilities is for its management, and for the common benefit and enjoyment of the members-unit owners. (Section 10, R.A. No. 4726) Moreover, Section 196 of the Tax Code of 1997 provides that on all conveyance, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates . . . prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher: . . .. Inasmuch as the assignment of the common areas and facilities to the Homeowners Association is not in connection with a sale, the same is not subject to documentary stamp tax prescribed in Section 196 of the said Code, supra . In view thereof, this Office is of the opinion as it hereby holds that the aforesaid Assignment of Right is not subject to the creditable withholding tax prescribed by 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 Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the said Code. (BIR Ruling No. 550-93 dated December 29, 1993, DA-419-96 dated November 12, 1996) CADHcI 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 Acting Assistant Commissioner Legal Service