Techno Polymer, Inc.

January 31, 2007 BIR RULING [DA-048-07] Secs. 24 (D), 27 (D) (5); DA 581-04 Techno Polymer, Inc . 281 Gen. Luis Street Kaybiga, Kalookan City Attention: Mr. Franklin Tan President Gentlemen : This refers to your letter dated October 26, 2006 requesting for a ruling on the tax implications of the transfer of a parcel of land together with the improvements thereon by Techno Polymer, Inc. (TECHNO) to its sole stockholder in the form of liquidating dividends. It is represented that TECHNO is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) with SEC Registration No. 124049 dated September 19, 1994; that it is the registered owner of a parcel of land together with the improvements thereon located in Kalookan City covered by TCT No. 285782 issued by the Registry of Deeds for Kalookan City; that in a Special Meeting duly held on December 31, 2005, the Board of Directors of TECHNO unanimously approved to dissolve the said corporation by shortening its corporate life until January 15, 2006, with no single transaction whatsoever, as evidenced by its filing of income tax return for non-operation; that as a result of the aforesaid dissolution, the only asset of the said corporation is the above-mentioned property; that the corporation is absolutely free of any liability to any person or to the National government and its instrumentalities; and that TECHNO, by virtue of the Board Resolution, will now distribute the said property to its sole stockholder as liquidating dividends as one of the final stages in the winding up of its affairs. In reply thereto, please be informed that the above transfer of properties in favor of its sole stockholder 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 stockholder is not considered a sale of these 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 shareholder. 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 shareholder as liquidating dividends is not deemed to be selling such assets to the latter. Accordingly, the transfer by TECHNO of the above-described property to the stockholder, in proportion to its 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 stockholder who sells the real property received by it as liquidating dividends immediately after title thereto is transferred to its name is subject to the final capital gains tax imposed under Section 24 (D) (1) of the Tax Code, as amended, in the case of individual distributees and Section 27 (D) (5) thereof, in the case of corporate distributees. Finally, since TECHNO, from the time it was organized was never engaged in the sale of real properties, the transfer of the above-described property in the form of liquidating dividends to its sole stockholder 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 ) SAHITC 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service