M.S. Guzman & Associates

June 25, 2007 BIR RULING [DA-346-07] DA 352-05 M.S. Guzman & Associates Unit 6B Vernida I Condominium Amorsolo Street, Legaspi Village Makati City Attention: Atty. Michael C. Ramirez Gentlemen : This refers to your letter dated April 24, 2007 stating that your client, Permanent Homes, Inc. (PHI) [formerly HIS Property Holdings, Inc.], is a real estate developer corporation with office address at 9th Floor, Vicente Madrigal Building, Ayala Avenue, Makati City; that it has developed a subdivision known as Buena Vida Homes located at Paraaque City which houses more than 50 families, each owning separately their respective lots, but utilizing among themselves the common areas i.e., guardhouse, gate, basketball court, clubhouse, pump house facilities, water tank and property office, within the subdivision which is still registered and owned by the developer; and that as a consequence of which, the families thereat established their own Buena Vida Homeowners Association with the primary purpose of taking care of the interest of the residents and at the same time managing and maintaining the common areas within the subdivision since there has already been a physical turnover of the said common areas in its favor by the developer. Based on the foregoing representations, you now request for confirmation of your opinion that the transfer of the property together with the improvements thereon as well as the common areas by the PHI, developer, to the Buena Vida Homeowners Association, Inc. is exempt from capital gains tax/creditable withholding tax and the corresponding documentary stamp tax. In reply thereto, please be informed that since the transfer of the property and the common area is without consideration and is not in connection with a sale made to the Buena Vida Homeowners Association, Inc., no income is generated and a fortiori, no creditable withholding tax is payable and collectible. In fact, the transfer by PHI of the property and the common area is made in favor of the individual unit owners of the project, and the purpose of the assignment to the Buena Vida Homeowners Association, Inc. of the common areas and facilities is for its management, and for the common benefit and enjoyment of the members-unit owners. ( Section 10, R.A. No. 4726 ) Moreover, Section 196 of the Tax Code of 1997, as amended, provides that on all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, 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 or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates . . . prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher: . . . Inasmuch as the transfer of the property and the common area and facilities to Buena Vida Homeowners Association, Inc. is not in connection with a sale, the same is not subject to documentary stamp tax prescribed in Section 196, supra . CcTIDH IN VIEW THEREOF, this Office holds that the aforesaid transfer of the property and the common area is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, 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 said Code. However, the notarial acknowledgment to said deed of assignment is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code, as amended. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service