BIR Ruling [DA-123-02]

July 23, 2002 BIR RULING [DA-123-02] 57, 196 Multi-Realty Development Corporation Makati Stock Exchange Bldg. Ayala Avenue, Makati City Attention: Ms. Cecilia R. Patricio AVP, Tax Division Gentlemen : This refers to your letter dated November 19, 2001 requesting for a confirmation of your opinion that the proposed turnover by Multi-Realty Development Corporation (MRDC) of subdivision roads, common areas, open spaces and facilities of SM Homes Subdivision to SM Homes Homeowners Association, Inc. (SMHHAI) is not subject to creditable withholding tax and documentary stamp tax. It is represented that MRDC is the owner and developer of a residential project known as SM Homes Subdivision located at Susano Road, Deparo, Kalookan City; that SMHHAI is the duly existing association of homeowners and buyers of SM Homes Subdivision, which was organized for the purpose of promoting and protecting their mutual interests and assist in their community development; that in accordance with the Memorandum of Agreement (MOA) executed by MRDC and SMHHAI on December 04, 2000, they shall cause the execution of deed of conveyance by which MRDC shall, upon completion of the construction and development of SM Homes Subdivision, transfer and convey unto SMHHAI all its rights, benefits, titles and interests on the road lots, common areas, open spaces and improvements thereon, more particularly described as follows: I. Land Road lot 1 TCT No. T-163545 Road lot 2 TCT No. T-163513 Road lot 3 TCT No. T-163514 Road lot 4 TCT No. T-163515 Road lot 5 TCT No. T-163516 Road lot 6 TCT No. T-163518 Road lot 7 TCT No. T-163517 Road lot 8 TCT No. T-163449 Block 4, Lot 31 (Open space) TCT No. 163369 Block 5, Lot 39 (Open space) TCT No. 163533 Block 6, Lot 49 (Open space) TCT No. 163416 Block 10, Lot 23 (Open space) TCT No. 163479 Block 3 (Open space) TCT No. 163544 II. Improvements (Existing prior to the execution of the MOA) (a) Multi-Purpose Hall situated at Block 3 (which was converted into a place of worship by SMHHAI) (b) Swimming Pool situated in Block 3 including its apartment motor and equipment; (c) Basketball Court situated in Block 3; (d) Guardhouse at the main entrance of SM Homes subdivision; (e) Meralco Streetlights (12 units). III. Improvements (newly constructed as per MOA) (a) New Multi purpose Hall (54 sq.m.); erected on block 3 (b) Main Entrance/Exit Steel Gate; (c) Playground Equipments installed at Lot 39, Block 05; (d) Concreted surrounding area of the swimming pool within cyclone wire fence erected on Block 3; and (e) Repainted cyclone wire fence of the swimming pool. As part of the conditions for the transfer, MRDC shall be given perpetual right of way over the roads of the SM Homes Subdivision leading to its properties within the subdivision and MRDC shall be free to develop its lots within the SM Homes Subdivision in accordance with its own plan without interference from the SMHHAI and the latter shall give its full cooperation to MRDC and its contractors to effect the above purpose. In reply, please be informed that the transfer of the subdivision roads, common areas, open spaces and facilities by MRDC to the homeowners association is not subject to capital gains tax and creditable withholding tax, since the conveyance of the said facilities is not for a monetary consideration. The purpose of the conveyance to the homeowners association is for the management of the project for the common benefit of the homeowners. ( Section 10, R.A. 4726 ) Moreover, 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." In view thereof, this Office is of the opinion as it hereby holds that the aforesaid transfer is not subject to the creditable withholding tax under 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 same Code. However, the notarial acknowledgement to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 183 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service