BIR Ruling [DA-375-A-03]

October 15, 2003 BIR RULING [DA-375-A-03] 27; 57 (B); 188 DA-164-98; DA-184-2001 Herrera Teehankee Faylona & Cabrera Law Offices 5th Floor, SGV II Building, 6758 Ayala Avenue, Makati City Attention: Attys. Arsenio C. Cabrera, Jr. and Raoul U. Sontillano Gentlemen : This refers to your letter dated August 8, 2003 requesting on behalf of your client, The Palisades Condominium Corporation (the "Corporation" for brevity) for a confirmation of your opinion that the transfer to the Corporation of the common areas and facilities, including the land on which the Palisades Condominium stands, is not subject to the withholding, value-added, donor's and documentary stamp taxes, except for the documentary stamp tax of P15.00, all under the Tax Code of 1997. The facts as represented, are as follows: 1. On December 15, 1999, Arch. William V. Coscolluela ("Arch. Coscolluela") and WVC Development Corporation (the "Developer") executed a Joint Venture Agreement for the construction of The Palisades Condominium (hereinafter referred to as "The Palisades") over a parcel of land owned by Arch. Coscolluela located at Perea Street, Legaspi Village, Makati City, with an area of Eight Hundred Fifty Six (856) square meters, more or less, covered by Transfer Certificate of Title No. 214998; 2. Upon completion of The Palisades, Arch. Coscolluela and the Developer allocated between them the condominium units and parking spaces in The Palisades in accordance with the Agreement; 3. Pursuant to Part 1, Section 8 of the Master Deed and Declaration of Restrictions of The Palisades, Arch. Coscolluela and the Developer formed and organized the Corporation, a non-stock, non-profit condominium corporation, pursuant to the provisions of the Condominium Act and the Corporation Law, for the purpose of holding title to all common areas of The Palisades, including the land on which the condominium was constructed, and to manage the same for the common benefit of the Corporation's members; and 4. On July 1, 2003, Arch. Coscolluela and the Developer executed the "Deed of Transfer" conveying without consideration all the common areas and facilities in The Palisades, including the land on which it stands, in favor of the Corporation for the above-mentioned purposes. In reply, please be informed as follows: 1. Since the above-mentioned transfer and conveyance of the subject real property was made without any monetary consideration and is not in connection with a sale made to The Palisades Condominium Corporation, no income was generated and a fortiori, no creditable withholding tax is payable and collectible. ICacDE In view thereof, this Office is of the opinion as it hereby holds that the aforesaid Deed of Transfer conveying the subject property in favor of The Palisades Condominium Corporation is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) in relation to Section 27(A) and (D)(5), all of the Tax Code of 1997. (BIR Ruling No. DA-164-98 dated April 22, 1998) 2. If The Palisades Condominium Corporation will sell the aforesaid subject properties, the said sale shall be subject to the 6% final tax imposed under Section 27(D)(5) of the Tax Code of 1997. 3. Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale to trustees or other persons without consideration are not taxable." Thus, it is neither subject to the documentary stamp tax nor value-added tax imposed under Section 196 and 105, both of the Tax Code of 1997. However, the notarial acknowledgment to said Deed of Transfer is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-184-2001 dated October 10, 2001) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service