BIR Ruling [DA-342-99]

June 9, 1999 BIR RULING [DA-342-99] Mr. Orlando V. Soriano 113-52 Quail Run Drive Victoria Valley, Antipolo, Rizal S i r : This is with reference to your letter filed with the BIR Appellate Division dated January 8, 1999 requesting in effect for a ruling confirming your opinion that the transfer of real properties by several incorporators of Malasiqui Progressive Savings and Loan Bank, Inc., (Bank) in exchange for shares of stock of the latter and the subsequent reconveyance of the same properties to the said incorporators is not subject to capital gains tax on the ground that the same was erroneously paid and collected from you. It appears that you and your wife, together with the other incorporators were establishing a thrift bank in the province of Pangasinan the Malasiqui Progressive Savings and Loan Bank, Inc.; that due to lack of cash, you and several other incorporators inquired from the Central Bank if you could use real estate properties as contributions in addition to the cash as capital; that the Central Bank has answered you in the affirmative; that thereafter, you and several other incorporators had your properties valued by an accredited appraiser of the Securities and Exchange Commission (SEC); that in order for the properties to be transferred to the Bank immediately, you were constrained to pay the taxes due thereon, such as the capital gains tax and the documentary stamp tax; that after payment of said taxes, you were issued the corresponding CAR; that later on, the Central Bank did not allow that properties be contributed as capital in lieu of cash; and that transfer/assignment of properties became useless thereby prompting you and the other incorporators to have your properties reconveyed. In view thereof, you are now requesting that the capital gains tax paid by you on the transfer of your properties in exchange for shares of stock of the Bank, be refunded or credited, and that the reconveyance of the properties to you and the other incorporators be exempt from the capital gains tax and documentary stamp tax. In reply, please be informed that the assignment of real properties in exchange for shares of stock of the Bank was in effect an erroneous transfer since it did not materialize due to the ruling of the Bangko Sentral that only cash should be contributed as capital to the Bank. Accordingly, you are not subject to the payment of the capital gains tax, but since the Deed of Assignment which was the source of the transfer of your real property, to the Malasiqui Progressive Savings and Loan Bank was validly executed by all the parties, then the documentary stamp tax imposed thereon is not available for refund. Moreover, because of that apparent refusal of the Bangko Sentral to allow that real properties be contributed as capital of the Bank in lieu of cash, the execution of the Deeds of Reconveyance by the Bank of the real properties covered by TCT No. 235853 of the Register of Deeds of Manila, TCT No. 337626 and 337625 both of the Register of Deeds of Marikina, to revert to you your subject real properties without any monetary consideration, is not likewise subject to the capital gains tax imposed under Section 27 (D)(5) of the Tax Code of 1997, nor to the documentary stamp tax imposed under Section 196 of the same Tax Code. However, the notarial acknowledgment to the said Deed of Reconveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code 1997. llcd This ruling 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, (BIR Ruling No. 009-95 dated January 16, 1995) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)