BIR Ruling [DA-292-97]

August 28, 1997 BIR RULING [DA-292-97] Emilex Agro-Indl. Corporation Silay City Attention: Mr. Roberto L. Hinolan Corporate Secretary Gentlemen : This refers to your letter dated March 5, 1997 requesting for a ruling on the tax consequence of the property dividend declaration of EMILEX AGRO-INDL. CORPORATION (EMILEX) consisting of real property. It is represented that EMILEX is a domestic corporation duly registered with the Securities and Exchange Commission with an authorized capital stock of One Million Pesos (P1,000,000.00), consisting of Ten Thousand (10,000) shares with a par value of One Hundred Pesos (P100.00) per share, of which Nine Thousand Ninety Four (9,094) shares have been fully paid; that as of December 31, 1996, it has a total stockholders equity in the amount of One Million Eight Hundred Twenty One Thousand Three Hundred Six and 43/100 Pesos (P1,821,306.43), with an unrestricted retained earnings in the amount of Nine Hundred Eleven Thousand Nine Hundred Six and 43/100 Pesos (P911,906.43); that on December 15, 1996, the Corporation declared a portion of its unrestricted retained earnings as of December 31, 1996 consisting of real estate properties, particularly described as follows: Description Book Value 1. Seven (7) contiguous parcels of land under TCT Nos. T-153183, T-153184, T-153185, T-153186, T-153187, T-153188 and T-153189 situated in Bacolod City P68,800.00 2. a) Six (6) parcels of adjacent land under TCT Nos. T-156767, 156768, T-156769, T-156770, T-156771, and T-156772 situated in Bacolod City P244,500.00 b) Three (3) parcels of land under TCT Nos. T-8727, T-8728 and T-8729 situated in Silay City ETaSDc 3. One (1) parcel of land under TCT No. 140144 situated in Makati City P533,600.00 that the real properties are capital assets of EMILEX, which are not used and not intended to be used in its ordinary course of business; that the properties declared as dividends were recorded in the books of the corporation at their book value; and that EMILEX will continue to do business and has no intention of liquidating the corporation after the declaration. Based on the foregoing, you now request confirmation that: "1. The properties declared which shall be received by the stockholders of EMILEX AGRO-INDL. CORPORATION can be recorded at their respective book value in the books of EMILEX, and its stockholders can record the dividends thus received at EMILEX's book value. "2. The declared property dividend shall be subject to a final withholding tax of zero (0%) percent, and that the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of these real estate properties as property dividend. "3. EMILEX shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real estate properties declared and distributed as property dividend. "4. Upon subsequent sale or other disposition of the real estate properties received as property dividends by EMILEX's stockholders, the basis of the taxation of the subsequent sale or other disposition, shall also be its book value at the time of the dividend distributions. CaSHAc "5. That the amount of documentary stamp tax on the Deeds of Conveyance to be executed between EMILEX and the recipient stockholders covering the real estate properties declared as property dividend shall be based on the book value of the said real properties at the rate of One Peso and Fifty Centavos (1.50) on each Two Hundred Pesos (P200.00) or fractional part hereof. "6. That the tax clearance certificate (TCC) authorizing the registration of the real property in favor of the transferee recipient stockholder by the Register of Deeds, without payment of the capital gains tax, shall be secured from the RDO of the Revenue District where the corporation or transferor declaring the dividends is located as per Revenue Regulations No. 11-96." In reply, please be informed that the property dividends which shall be received by the individual stockholders of EMILEX shall be subject to a final withholding tax of zero percent (0%) and the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of the said real properties as property dividends. [Section 21 (c) (2) of the Tax Code, as amended by Executive Order No. 37] The property dividends shall be recorded at their book value in the books of both the issuing corporation and the recipient stockholder. Moreover, EMILEX shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real estate properties declared and distributed as property dividends. This is so because there is no realized gain if the value used at the time of distribution is the book value. However, upon subsequent sale or other disposition of the property received as dividends by the stockholders, the basis of such property shall be its book value at the time of the dividend distribution. cASTED Finally, the documentary stamp tax on the Deeds of Conveyance to be executed by and between EMILEX and the recipient individual stockholders covering the real estate properties declared as property dividends shall be based on the book value of the said real estate properties at the rate prescribed under Section 196 of the Tax Code, as amended by R.A. No. 7660. The documentary stamp tax shall be due and payable on the day of execution of the Deed of Conveyance (Section 173, Tax Code, as amended). (BIR Ruling Nos. 80-89 and 108-93 dated March 16, 1993) It is understood, however, that the tax clearance certificate authorizing the registration of the real property in favor of the transferee recipient-stockholder by the Register of Deeds concerned, without payment of the capital gains tax, shall be secured from the Revenue District Officer (RDO) of the Revenue District where the corporation declaring the dividends is registered. (Revenue Regulations No. 11-96) ICTacD 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.) SIXTO S. ESQUIVIAS IV OIC-Assistant Commissioner (Legal Service)