BIR Ruling [DA-367-99]

June 24, 1999 BIR RULING [DA-367-99] Santiago & Santiago Law Offices Ground Floor, Ortigas Building Ortigas Avenue, Pasig City Attention: Atty . Amado R . Santiago III Gentlemen : This refers to your letter dated April 28, 1999 stating that your client, Ansear Realty Corp. (ANSEAR) is a domestic corporation organized and existing for the purpose of acquiring, holding, selling, dealing in, leasing, renting, improve pledge, mortgage, subdivide, or otherwise dispose of, lands, tenements, buildings, or any interest therein and the fixtures and personal properties incidental thereto; that since its registration with the Securities and Exchange Commission (SEC) on November 22, 1987, it did not operate and never engaged in any business whatsoever; that its sole asset is a parcel of land in Muntinlupa City; that the stockholders are considering the dissolution of the corporation and the distribution of the sole asset to its stockholders in proportion to their equity in the corporation. LexLib In connection therewith, you now request confirmation of your opinion that "1. When ANSEAR distributes its only asset to its stockholders, the latter shall acquire liquidating dividends; and consequently, shall realize capital gain or loss. The capital gain, if any, derived by the stockholders shall be subject to the final capital gains tax imposed under Section 24 (C) of the Tax Code, as amended. "2. When ANSEAR distributes its only asset to its stockholders as liquidating dividends, such conveyance of the said parcel of land shall be subject to documentary stamp tax (DST) imposed under Section 196 of the Tax Code, as amended; "3. When ANSEAR distributes its only asset to its stockholders as liquidating dividends, such conveyance of the said parcel of land shall not be subject to creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulation 2-98, dated April 17, 1998; and "4. If the stockholders sell the distributed asset received by them as liquidating dividends immediately after title thereto is transferred to their names, the said sale shall be subject to the final capital gains tax imposed under Section 24(D)(1) of the Tax Code, as amended." In reply thereto, please be informed as follows: 1. The stockholders of ANSEAR shall realize capital gain or loss when ANSEAR distributes to them its asset as liquidating dividends; and that the capital gain, if any, shall be subject to the final capital gains tax imposed under Section 24(C) of the Tax Code of 1997. (BIR Ruling No. 015-82, dated 20 January 1982; BIR Ruling No. 19-80, dated 6 October 1980.) 2. The conveyance of the parcel of land of ANSEAR in the form of liquidating dividends shall be subject to documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 270-91, dated 23 September 1991.) In all cases involving sale, exchange or any disposition of real property as in this case, where real property is being distributed, by the corporation to its stockholders as liquidating dividends, the tax base for DST purposes is the fair market value or zonal value of the real property. (RMO No. 41-91.) After payment of the corresponding DST, the parcel of land conveyed by ANSEAR in the form of liquidating dividends may be registered by the Register of Deeds concerned in the name of the stockholders. 3. The conveyance of the said parcel of land in the form of liquidating dividends shall not be subject to the creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulation 2-98, (BIR Ruling No. 270-91, dated 23 December 1991.) 4. The sale by the stockholders of ANSEAR of the distributed asset received by them as liquidating dividends immediately after title thereto is transferred to their names shall be subject to the final capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 021-89, dated 13 February 1991.) 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)