BIR Ruling [DA-327-05]

July 26, 2005 BIR RULING [DA-327-05] 27 (D) (5); 73; 196; #039-2002; DA-496-2004 First Christian Development Corporation 252 Buendia Avenue Makati City Attention: Mr. Noel V. Santos President Gentlemen : This refers to your letter dated November 12, 2004 requesting for a ruling that transfer of properties by First Christian Development Corporation ("FCDC") to its stockholders by way of liquidating dividends, as a consequence of the former's complete liquidation, is not subject to the corporate income tax, creditable withholding tax and documentary stamp tax. It is represented that FCDC is a domestic corporation duly registered with the Securities and Exchange Commission on February 14, 1994 having an authorized capital stock of Fifty Million Pesos (P50,000,000);that on November 10, 2004, the Board of Directors of FCDC unanimously approved. to dissolve the corporation by shortening its corporate life effective December 31, 2004 with no single transaction whatsoever, as evidenced by its filing of income tax return for non-operation; and that as a result of the dissolution.,the assets of the corporation will be distributed to its stockholders by way of liquidating dividends, consisting of condominium units, as follows: ASSIGNMENT LIST NAME of PROPERTY CCT STOCKHOLDERS Noel V. Santos Unit PH3706 65232 Unit 2211 65039 Unit 2110 65024 Unit 2109 65023 Unit 2102 65016 Unit 2101 65015 Alec V. Santos Unit PH3705 65231 Unit 2406 65062 Unit 2405 65061 Unit 2404 65060 Unit 2402 65058 Unit 2209 65037 Raya V. Santos Unit PH3702 65228 Unit 2410 65066 Unit 2407 65063 Unit 2401 65057 Unit 2310 65052 Unit 2302 65044 Unit 2111 65025 Alan V. Santos Unit PH3701 65227 Unit 2311 65053 Unit 2308 65050 Unit 2206 65034 Mark V. Santos (1/2) Unit 2315 65056 Alan Santos (1/2) Mark V. Santos Unit PH3703 65229 Unit 2409 65065 Unit 2408 65064 Unit 2309 65051 Unit 2304 65046 Unit 2003 65003 Rina V. Santos Unit 2411 65067 Unit 2210 65038 Unit 2208 65036 Unit 2204 65032 Unit 2115 65028 Unit 2114 65027 Unit 2002 65002 Richard C. Santos Unit 2203 65031 Unit 2207 65035 Unit 2301 65043 Unit M103 64886 Nilo A. Santos, Jr. Unit 2312 65054 Dolores A. Santos Unit 2314 65055 Sarada S. Santos Unit 2012 65012 Jaderani S. Santos Unit 2112 65026 Noel V. Santos (1/6) Alec V. Santos (1/6) Alan V. Santos (1/6) Unit LG101 64879 Raya V. Santos (1/6) Rina V. Santos (1/6) Mark V. Santos (1/6) Sps. Nilo L. Santos and Unit 2201 65029 Glenda B. Santos Unit 2202 65030 Unit PH3707 65233 Mila S. Tanseco Unit 2601 65085 Unit 2607 65091 Unit PH3704 65230 Unit 2403 65059 Unit 2412 65068 Yvonne B. Colendrino (1/2) Unit 2414 65069 Richard S. Brodett (1/2) Unit 2604 65088 Unit 2605 65089 Unit 2608 65092 Vincent S. Syyap Unit 2104 65018 Sheila S. Sarmiento Unit 2106 65020 Carlos S. Syyap, Jr. Unit 2107 65021 Verona S. Agustines Unit 2212 65040 Unit 2214 65041 Unit 2215 65042 Unit 2602 65086 Unit 2603 65087 Unit PH3708 65234 Robert Bruce McIntosh Unit 2306 65048 Unit 2307 65049 Sps. Kum Ji Park Shin Unit 2305 65047 And Hea Kook Shin Efren Jose Y. Mercado Unit 2415 65070 Lolita A. Bertram Unit 2205 65033 J. Lorenzo S. Vergara Unit 2611 65095 Marlon P. Magtoto Unit 2108 65022 John Mark Smith Quan Unit 2303 65045 Laurence Anthony Ly Lok Unit 2014 65013 Ecumenical Foundation of Unit M104 64887 Asia, Inc. Unit M105 64888 RMS Living House Realty Corp. Unit 2609 65093 Devonshire Corporation Unit 2103 65017 In reply, please be informed as follows: 1. On the income tax The conveyance of the condominium units in the form of liquidating dividends is not subject to income tax, on the part of FCDC, either on its receipt of the surrendered shares, or its transfer of the aforesaid property to its stockholders. aDSAEI In BIR Ruling No. 171-92 dated May 28, 1992, this Office ruled that the transfer by the liquidating corporation of its remaining assets to its stockholders is not considered sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation. (W.P. Fox & 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, cited in BIR Ruling No. 196-010-90-059-90 dated April 17, 1990). Conversely, neither is a liquidating corporation subject to tax on its receipt of the shares surrendered by its stockholders pursuant to a complete or partial liquidation (BIR Ruling No. 171-92, supra ). Accordingly, FCDC is not liable to income tax on either the transfer of its assets to its stockholders, or on its receipt of the shares surrendered by the shareholders. On the other hand, the gain, if any, derived 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 corporation (Section 66 (a); Sec. 256 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations) shall be subject to the ordinary income tax rates provided under Section 24(A)(1)(c) of the Tax Code of 1997. (BIR Ruling No. 039-2002 dated November 11, 2002) 2. On the documentary stamp tax The conveyance of the condominium units in the form of liquidating dividends is not subject to the documentary stamp tax (DST) on sale or transfer of real property imposed under Section 196 of the Tax Code of 1997. Section 189 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations" provides, viz: "Section 109. 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 ." (Underscoring and italics supplied) Under the above-quoted provision, a distribution in liquidation, without consideration, of the assets of a corporation consisting of condominium units is not subject to DST imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution of the remaining assets of FCDC to its controlling stockholders without monetary consideration is not subject to DST as prescribed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 214-96 dated June 26, 1996 and BIR Ruling No. 092-99 dated July 8, 1999 citing BIR Ruling No. 059-90). cSITDa In addition, Section 196 of the Tax Code of 1997 speaks of "all conveyances, deeds, instruments, or writings, . . ., whereby any land, tenement or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or to any other person designated by such purchaser or purchasers, . . .". Since it has been held that a corporation that distributes its assets to its stockholders as liquidating dividends is not deemed to be selling such assets to the latter, then Section 196 of the Tax Code of 1997 shall not apply. However, the notarial certification on this deed of assignment is subject to the DST of P15.00, Pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 039-2002 dated November 11, 2002) This ruling supersedes BIR unnumbered ruling DA-084-2005 dated March 14, 2005 as this is hereby being issued on the basis of new facts as abovecited and as represented by herein taxpayer. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service