BIR Ruling [DA-155-04]

March 31, 2004 BIR RULING [DA-155-04] Act 4726 DA 419-96 Green Valley Townhomes Owners' Association Green Valley Townhomes Kaimito Street, Valle Verde I Brgy. Ugong, Pasig City Attention: Ms. Letty Lacson GVTOA President Gentlemen : This refers to your letter dated March 16, 2004 requesting for a ruling that the conveyance by Esla Realty & Development Corporation, developer/assignor, of the ownership and title to the common areas of the Green Valley Townhouses covered by TCT Nos. (486729) 2269 and 2376 to the Green Valley Townhomes Owners' Association (GVTOA), is exempt from the capital gains tax/creditable withholding tax and documentary stamp tax. It is represented that Esla Realty & Development Corporation, is a domestic corporation with address at No. 233 Chateau Verde Condominium, Kaimito Street, Valle Verde I, Pasig City, is engaged in the realty business; that it is the registered owner of a parcel of land located in Pasig City covered by TCT Nos. (486729)2269 and 2376 issued by the Registry for Pasig City, with a land area of 10,000 square meters; that Esla Realty & Development Corporation has built a townhouse known as Green Valley Townhouses; that on the other hand, the GVTOA is a non-stock, non-profit corporation formed for the purpose of holding the title to the common areas and manage the said project; and that Esla Realty & Development Corporation and GVTOA proposed to execute a Deed of Conveyance, whereby the former will transfer and convey unto the latter the title to the above parcels of land together with the common and parking areas in compliance with R.A. No. 4726. In reply, please be informed that since the transfer is without monetary 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 Esla Realty & Development Corporation of the units were made in favor of the individual unit owners of the condominium project, and the purpose of the transfer to the Green Valley Townhouses of its common and parking 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 transfer of the common and parking areas and facilities to the Green Valley Townhouses 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 holds that the aforesaid transfer is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, 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 pursuant to Section 188 of the said Code. ( BIR Ruling No. 550-93 dated December 29, 1993; DA419-96 dated November 12, 1996 ) 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. ICDcEA Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service