BIR Ruling [DA-313-98]

July 9, 1998 BIR RULING [DA-313-98] Tondo Properties Corporation 453 C. Palanca Street Quiapo, Manila Attention: Ms . Agnes S . Garcia Corporate Secretary Gentlemen : This refers to your letter dated April 27, 1998 stating that Tondo Properties Corporation is a domestic corporation duly registered with the Securities and Exchange Commission with an authorized capital stock of Three Hundred Million Pesos (P300,000,000.00) divided into Three Million (3,000,000) shares with a par value of One Hundred Pesos (P100.00) per share; that on July 14, 1997, the Board of Directors and stockholders Of the Tondo Properties Corporation in a special meeting held at Shin Hao, Greenhills. San Juan, Metro Manila unanimously approved to dissolve the Corporation by shortening its corporate life from 50 years to until July 14, 1997; that as a result of the dissolution, the remaining assets, among which are four (4) parcels of land located at Tondo, Manila covered by Transfer Certificates of Title Nos. 226646, 226647, 226648 and 226649 issued by the Registry of Deeds for the City of Manila, will be distributed to its stockholders, by way of liquidating dividends; and that Tondo Properties Corporation has no liability of any kind. cdpr Based on the foregoing, you now request for a ruling on the following queries : "(1) Whether the corporation, in transferring the said parcels of land to its stockholders, is subject to the corporate income tax and therefore also to the creditable expanded withholding tax of 6%; "(2) Whether the corporation is subject to the documentary stamp tax on the document transferring the land to the stockholders; and "(3) Whether the stockholders to whom the properties are to be distributed are subject to individual income tax covering the difference, if any, of the current market value of the properties over the cost to them of their respective shareholdings in the corporation." In reply, please be informed that as follows : 1) Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations, as last amended by Revenue Regulations No. 2-98, implementing Section 64(B) of the Tax Code of 1997, does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's shares of stock for cancellation by the corporation. This conveyance is without consideration. casia The transfer by the liquidating corporation of its remaining assets to its stockholders is not considered as a sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation. [W. P. Fax & Sons Inc., Petitioner v. Commissioner of Internal Revenue, Respondent, 15 BTA 115; Jordan Petroleum Company, 13 AFTR 2d 1692 (227 F. Supp. 174); J.T.S. Brown & Son Company v. Commissioner of Internal Revenue, 10 TC 840] Hence, the transfer by Tondo Properties Corporation of its assets, i. e., four (4) parcels of land, to its stockholders by way of liquidating dividends is not subject to the expanded creditable withholding tax imposed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, as last amended by Revenue Regulations No. 2-98 (BIR Ruling No. 059-90 dated April 17, 1990), and consequently, the same is not subject to the corporate income tax.. 2) Section 189 of Revenue Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations provides, viz : "SEC. 189. Conveyances by corporation to owner of all the capital . A conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax." Under the above-quoted Section 189 of Revenue Regulations No. 26, a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to the majority owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution in liquidation of the assets of Tondo Properties Corporation, consisting of four (4) parcels of land, to its stockholders, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 059-90 dated April 17, 1990); and 3) Since the individual stockholders of Tondo Properties Corporation will receive upon its liquidation all of its assets as liquidating dividends, they will thereby realize capital gain or loss. The gain, if any, received by the individual stockholders consisting of the difference between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of their respective shareholdings in the said corporation [Sec. 66(a); Sec. 256, Income Tax Regulations] shall be subject to income tax at the rates prescribed under Section 24(A)(I)(a) of the Tax Code, as amended. (BIR Ruling No. 136-88 dated April 12 1988) 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 Deputy Commissioner (Legal and Enforcement Group)