BIR Ruling [DA-279-03]

August 25, 2003 BIR RULING [DA-279-03] 57 (B), 196 DA-019-2000 Cayaga, Zuiga and Angel 2nd Floor, One Corporate Plaza 845 Pasay Road, Legaspi Village Makati City Attention: Attys. Benjamin L. Angel and Cherry Marie A. Madrid Gentlemen : This refers to your letter dated August 30, 2002 requesting for a ruling relative to the conveyance of land and common areas in a condominium project by Meridien Development Group, Inc. (MDGI) and East Forbes Properties Corporation (EFPC) in favor of the Essensa East Forbes Condominium Corporation. The facts as represented are as follows: MDGI and EFPC are corporations engaged in the development of condominium projects and the registered owners of the following parcels of land: Owner TCT No. Area MDGI 34080 3,132 sq.m. MDGI 34081 3,270 sq.m. EFPC 34082 3,131 sq.m. said parcels of land, the building and other improvements constructed thereon have been constituted into a condominium project known as the Essensa East Forbes in accordance with the provisions of Republic Act No. 4726, otherwise known as the Condominium Act, by registering with the Register of Deeds of Rizal, the Master Deed with Declaration of Restrictions of the project Pursuant to the provisions of the Master Deed with Declaration of Restrictions as provided for by the Condominium Act, Essensa East Forbes Condominium Corporation was organized for the purpose of holding title to, managing and maintaining the common areas of the project which is defined in the Master Deed to include the above-described parcels of land. The developers, MDGI and EFPC, have earlier formally turned-over the management of the common areas to the Essensa East Forbes Condominium Corporation which accepted the same. You now request for a ruling or a confirmation of your opinion that: 1. The transfer/conveyance of land and common areas in a condominium project to the condominium corporation for the management of the common benefit of the unit owners is no longer subject to capital gains tax prescribed under Section 27 of the Tax Code; 2. The Deed of Conveyance of realty not in connection with a sale to the condominium corporation without consideration is not subject to the documentary stamp tax imposed by Section 196 of the Tax Code, pursuant to Section 185, Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations; 3. Pursuant to Revenue Memorandum Circular No. 41-86, par. (a), since the transferor is a corporation, no BIR clearance is required for purposes of recording the transaction and effecting the transfer of title by the Register of Deeds. In reply, please be informed that: 1. The transfer of land and common areas in a condominium project to the condominium corporation for the management of the common benefit of the unit owners is not subject to capital gains tax, neither is it subject to creditable withholding tax prescribed under Section 2.57(B) of Revenue Regulations No. 2-98, implementing Section 57(B), in relation to Section 27 of the Tax Code of 1997. The Deed of Conveyance above-mentioned was made without consideration and is not in connection with a sale made to Essensa East Forbes Condominium Corporation, no taxable income will be generated and a fortiori, no creditable withholding tax is payable and collectible. 2. The Deed of Conveyance executed is not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code. 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." However, the notarial acknowledgment to said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Tax Code. (BIR Ruling No. DA-019-2000 dated January 11, 2000) 3. The confirmation of this request will authorize the appropriate Revenue District Officer (RDO) to issue the corresponding Tax Clearance Certificate with regard to the transfer of the common area to the condominium corporation without need of presentation of proof of payment of the creditable withholding tax and documentary stamp tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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