BIR Ruling [DA-352-05]

August 17, 2005 BIR RULING [DA-352-05] Jose C. Leynes & Ma. Lourdes L. Guillergan 703-A Vicente Madrigal Building 6793 Ayala Avenue Makati City Attention: Atty. Ma. Lourdes L. Guillergan Gentlemen : This refers to your letter dated July 8, 2005 stating that your client, TAN CHIE PHENG (TAN), is the registered owner of a parcel of land together with the improvements thereon (Property) located at 1060 Pedro Gil Street, Paco, Manila, consisting of 535.60 square meters and covered by TCT No. 123093 issued by the Registry of Deeds for Manila; that the said Property was brought under the operation of the Condominium Act (R.A. No. 4726) or converted into a condominium project known as "Newmark Condominium" (Project) by virtue of a Master Deed with Declaration of Restriction executed on March 24, 1997; that the building was divided into condominium units and certain portions thereof were designated as common areas; that the common areas were issued separate Condominium Certificates of Title Nos. 32046, 32042, 32039 and 32032 registered in the name of TAN as the declarant and original owner of the properties constituting the condominium project; that pursuant to the provisions of Section 7(a) of the Master Deed and Section 10 of the Condominium Act, Newmark Condominium Corporation (NEWMARK) is organized and its Certificate of Registration No. A 1997-10293 was issued by the Securities and Exchange Commission (SEC) on July 1, 1997; that NEWMARK is established primarily to manage the condominium project and to hold title to the common areas; that in compliance with the aforesaid provisions of the Master Deed and the Condominium Act, TAN transferred to NEWMARK the abovementioned land the common areas; that the transfer is covered by a Deed of Assignment executed on July 7, 2005; and that the transfer is necessary to comply with the requirements of the Condominium Act and the transferor did not receive any consideration thereof. Based on the foregoing representations, you now request exemption from the payment of creditable withholding tax prescribed under Revenue Regulations No. 2-98, as amended, and documentary stamp tax imposed under Section 196 of the Tax Code of 1997. In reply, please be informed that since the transfer of the land and the common area is without consideration and is not in connection with a sale made to the NEWMARK, no income was generated and a fortiori ,no creditable withholding tax is payable and collectible. In fact, the transfer by TAN of the property and the common area were made in favor of the individual unit owners of the project, and the purpose of the assignment to the NEWMARK 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 provides that on all conveyance, 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 NEWMARK is not in connection with a sale, the same is not subject to documentary stamp tax prescribed in Section 196 of the said Code, supra . 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 Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the said Code. (BIR Ruling No. 550-93 dated December 29, 1993; DA419-96 dated November 12, 1996) cDTACE 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