BIR Ruling [DA-382-05]

September 6, 2005 BIR RULING [DA-382-05] 27; 57 (B); 188; DA-610-2004 Dulay Pagunsan & Ty Law Offices 4/F Bee Lu Building 103-113 Sen. Gil Puyat Avenue 1306 Pasay City Attention: Atty. Julie Anne Christy A. Padilla For the Firm Gentlemen : This refers to your letter dated August 17, 2005 requesting on behalf of your client, NKC Property and Development Corporation ("NKC") , confirmation of your opinion that the assignment, transfer or conveyance of the parcels of land on which a condominium project has been constructed, specifically those covered by Transfer Certificates of Title Nos. 23215 and 232117 of the Register of Deeds of Manila, in favor of a condominium corporation is exempt from the payment of income tax, creditable withholding tax, capital gains tax, documentary stamp tax and value added tax. The facts, as represented, are as follows: 1. NKC, a domestic corporation, is the owner and developer of two (2) parcels of land ("mother lot", for brevity) located at Mayhaligue corner Masangkay St., Sta. Ana Manila and covered by Transfer Certificates of Title Nos. 232115 and 232117 of the Register of Deeds of Manila, upon which Broadview Towers Condominium ("Condominium Project", for brevity) was constructed. On the other hand, Broadview Towers Condominium Corporation, a non-stock, non-profit domestic corporation is the condominium corporation that was formed and organized for the purpose of holding title to, managing and maintaining the common areas of the project, pursuant to the Master Deed with Declaration of Restrictions of the Condominium Project dated March 18, 1997. 2. On August 8, 2005, a Deed of Assignment was executed between the Owner-Developer and the Condominium Corporation whereby the former conveyed its rights, interest and participation in and to the mother lot in favor of the latter, free from all liens and encumbrances and without monetary consideration, pursuant to the provisions of the Condominium Act which mandates that the Condominium Corporation shall hold title to the common areas including the land, as well as the Master Deed and Declaration of Restrictions of the Condominium Project. 3. Majority of the units of the projects have already been sold and titled in the name of the individual unit-owners, after having paid the documentary stamp tax, transfer and registration fees, and capital gains tax. Furthermore, each title to a unit sold is annotated on the Certificate of Title to the land. 4. The Deed of Assignment dated August 8, 2005 is being executed simply to comply with requirements of the Condominium Act and the Master Deed with Declaration of Restrictions of the Condominium Project, and is without monetary or financial consideration. Hence, no income was generated from the assignment, transfer and conveyance of the said mother lot of the Condominium Project. In reply, please be informed as follows: 1. The assignment, transfer and conveyance of the subject real properties made without any monetary consideration and not in connection with a sale to Broadview Towers Condominium Corporation is not subject to creditable withholding tax since no income is generated therefrom. In view thereof, this Office is of the opinion as it hereby holds that the assignment, transfer and conveyance of the subject properties in favor of Broadview Towers Condominium Corporation 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(A) and (D)(5), all of the Tax Code of 1997. ( BIR Ruling No. DA-610-2004 dated December 1, 2004 ) 2. If Broadview Towers 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. HSAcaE 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 Sections 196 and 105, both of the Tax Code of 1997. However, the notarial acknowledgement on the Deed of Assignment 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 will therefore serve as an authority for the Revenue District Officer having jurisdiction over the place where the property is located to issue the corresponding Certificate Authorizing Registration/Tax Clearance Certificate to enable the transfer of the land and the common areas to Broadview Towers Condominium Corporation without need of presentation of proof of payment of the creditable withholding tax and documentary stamp tax. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service