BIR Ruling [DA-295-04]

May 31, 2004 BIR RULING [DA-295-04] 57 (B), 196 DA-178-2003 Cayaga, Zuiga and Angel 2nd Floor, One Corporate Plaza 845 Pasay Road, Legaspi Village Makati City Attention: Atty. Ma. Melinda A. Zuiga Gentlemen : This refers to your letter dated November 24, 2003 requesting on behalf of your client, Penta Pacific Realty Corporation (Penta for brevity) for a ruling on its exemption from the payment of the creditable withholding tax and documentary stamp tax on the conveyance of the common areas of its condominium project in favor of the Pacific Star Building Condominium Corporation. The facts as represented are as follows: Penta, a domestic corporation organized and existing under the laws of the Republic of the Philippines, with principal office and place of business at the Fifth Floor, Pacific Star Building, Makati Avenue, Makati City, is the owner of a parcel of land with an area of Six Thousand Five Hundred (6,500) sq.m., more or less, covered by Transfer Certificate of Title No. 171217 of the Registry of Deeds for Makati, Metro Manila located at Makati Ave. cor. Gil Puyat Ave., Makati City, and upon which the Pacific Star Building, was constructed. Pacific Star Building Condominium Corporation, also a domestic corporation, is a condominium corporation that was organized for the purpose of holding title to, managing and maintaining the common areas of the Project, including the land, as provided in the Master Deed with Declaration of Restrictions of Pacific Star Building. Penta executed a Deed of Conveyance of Land and Common Areas in the aforementioned Project, which conveyed title to the land, other common areas of the building and the machineries and equipment to the Pacific Star Building Condominium Corporation, free from any liens and encumbrances. The Deed of Conveyance was executed pursuant to the requirements of Section 2 of RA No. 4726, otherwise known as the "Condominium Act" which mandates the Condominium Corporation to hold title to the common areas of a certain project. In reply, please be informed that since the Deed of Conveyance of Land and Common Areas in Condominium Project was made without consideration and is not in connection with a sale made to Pacific Star Building Condominium Corporation, no taxable income will be generated and a fortiori , no creditable withholding tax is payable and collectible. The purpose of the conveyance to Pacific Star Building Condominium Corporation is for the management of the project for the common benefit of the unit-owners. (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 transaction is not subject to the creditable withholding tax prescribed by 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. 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 of Land and Common Areas is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-178-2003 dated June 5,2003) 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. EDCIcH Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service