BIR Ruling [DA-039-00]

January 19, 2000 BIR RULING [DA-039-00] Y . F . Busmente & Associates Law Offices Suite 723 BPI Office Condominium Plaza Cervantes, Binondo Manila Attention: Atty . Yolando F . Busmente Gentlemen : This refers to your letter dated December 8, 1999 stating that your client, Sorealty Development, Inc., a realty development corporation, constructed a condominium building for the purpose of selling the condominium units/parking slots in said condominium building and with the expectation of making profit therefrom; that the condominium building was completed in June, 1999 and it is the only asset of the corporation; that the corporation has no liability; that because of the present business condition, up to the present, the corporation has not sold even a unit of said condominium building; and that the stockholders have decided to apportion or divide the condominium units/parking slots among themselves in accordance with their equity investment in the corporation as return on their investments and eventually to dissolve the corporation; Based on the foregoing, you now in effect request for a ruling on the tax consequence of the apportionment and distribution of condominium units/parking slots to the stockholders as return of capital investment In reply, please be informed as follows: 1. The stockholders of Sorealty Development, Inc. shall realize capital gain or loss when Sorealty Development, Inc. distributes to them its asset as liquidating dividends; and that the capital gain, if any, shall be subject to the final capital gains tax imposed under Section 24(C) and 27 (D)(2) of the Tax Code of 1997. (BIR Ruling No. 015-82, dated 20 January 1982; BIR Ruling No. 19-80, dated 6 October 1980.) 2. The conveyance of the parcel of land of Sorealty Development, Inc. in the form of liquidating dividends shall be subject to documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 270-91, dated 23 September 1991.) In all cases involving sale, exchange or any disposition of real property as in this case, where real property is being distributed, by the corporation to its stockholders as liquidating dividends, the tax base for DST purposes is the fair market value or zonal value of the real property. (RMO No. 41-91.) After payment of the corresponding DST, the parcel of land conveyed by Sorealty Development, Inc. in the form of liquidating dividends may be registered by the Register of Deeds concerned in the name of the stockholders. 3. The conveyance of the said parcel of land in the form of liquidating dividends shall not be subject to the creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulation 2-98, (BIR Ruling No. 270-91, dated 23 December 1991.) 4. The sale by the stockholders of Sorealty Development, Inc. of the distributed asset received by them as liquidating dividends immediately after title thereto is transferred to their names shall be subject to the final capital gains tax of 6% imposed under Section 24(D)(1) and 27(D)(5) of the Tax Code of 1997 depending on whether the seller is a resident individual or a corporation. The said sale shall also be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group