BIR Ruling [DA-312-99]

May 20, 1999 BIR RULING [DA-312-99] Filinvest Alabang, Inc. 173 P. Gomez St., San Juan Metro Manila Attention: Mr . Efren M . Reyes Senior Vice President Gentlemen : This refers to your letter dated November 9, 1998, requesting for a clarification on the basis of documentary stamp tax under Section 196 of the National Internal Revenue Code, as amended, prior to its amendment by Republic Act No. 8424, in relation to the tax-free transfer of property by Filinvest Alabang, Inc. (FAI) to Health Care Properties, Inc. (HCPI). It is represented that FAI and HCPI executed a Deed of Assignment dated August 26, 1997 and notarized on September 1, 1997; that FAI transferred its 74% ownership interest in a parcel of land at the Filinvest Corporate City, Alabang, Muntinlupa City and covered by Transfer Certificate of Title No. 210303 issued by the Registry of Deeds of Makati City to HCPI; that in exchange therefor, FAI subscribed to 750,000 shares of stock of HCPI with a par value of P100.00 each; and that in BIR Ruling No. S-40-138-98 dated July 24, 1998, it is stated that the exchange of the property of FAI for shares of stock of HCPI would qualify as a tax-free exchange under Section 34(c)(2) of the Tax Code of 1997 considering that after the exchange, FAI gained control of HCPI. In reply, please be informed that a conveyance or deed whereby land is assigned or transferred to the purchaser is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty (Section 196, Tax Code). A stock in a corporation is a valuable consideration for transfer of real property (Section 177, Documentary Stamp Tax Regulations). Thus, if parcels of real properties are exchanged with stocks in a corporation, as in this case, the latter (shares of stock) is the consideration; the value of which shall be the basic of the documentary stamp tax due on the aforesaid Deed of Exchange. The value shall be the fair market value which shall not be less than the par value of the stocks. (BIR Ruling No. 93-97 dated August 25, 1997) However, for transactions that occurred effective January 1, 1998, DST on conveyance of real property shall be based on the consideration for such realty or its fair market value/zonal value, determined in accordance with Section 6(E) of the same Code, whichever is higher, pursuant to Section 196 of the Tax Code of 1997. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group