BIR Ruling [DA-406-06]

June 28, 2006 BIR RULING [DA-406-06] 57 (B), 196; DA-178-2003 Cayaga, Zuiga and Angel 2nd Floor, One Corporate Plaza 845 Pasay Road, Legaspi Village Makati City Attention: Attys. Benjamin L. Angel and Joseph Angelo D. Angel Gentlemen : This refers to your letter dated May 6, 2004 requesting for a ruling relative to the conveyance of land and common areas in a condominium project by Meridian Land Holdings, Inc. (MLHI), WVC Development Corporation (WVC) and the Syjucos in favor of Oxford Suites Condominium Corporation. The facts as you represented are as follows: MLHI is a corporation engaged in the development of condominium projects. On March 30, 1995, it entered into a Joint Venture Contract with WVC and the Syjucos for the development of the latter's parcels of land into a condominium project. The parcel of land owned by WVC is covered by TCT No. 451272 with an area of 344 sq.m., while that of the Syjucos is evidenced by TCT No. 171725 consisting of 345 sq.m., the building (Oxford) and the other improvements constructed thereon, have been constituted into a condominium project known as the "Oxford Suites" in accordance with the provisions of Republic Act No. 4726, otherwise known as the Condominium Act, by registering with the Register of Deeds of Makati City, the Master Deed with Declaration of Restrictions of the Project. Pursuant to the provisions of the Master Deed with Declaration of Restrictions as provided for by the Condominium Act, Oxford Suites Condominium Corporation was organized for the purpose of holding title to, managing and maintaining the common areas of the project which is defined in the Master Deed, to include the above-described parcels of land. The developer, MLHI, earlier formally turned-over the management of the common areas to the Oxford Suites Condominium Corporation which accepted the same. In view of the foregoing, you now request for a ruling or a confirmation of your position on the following: 1. That the transfer/conveyance of land and common areas in a condominium project to the condominium corporation for the management of the common benefit of the unit owners is no longer subject to capital gains tax prescribed under Section 27 of the Tax Code; HTacDS 2. That the Deed of Conveyance of realty not in connection with a sale to the condominium corporation and without consideration is not subject to the documentary stamp tax imposed by Section 196 of the 1997 Tax Code, and Section 185, Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations; 3. That pursuant to Revenue Memorandum Circular No. 41-86, par. 5 (a), since the transferor is a corporation, no BIR clearance is required for purposes of recording the transaction and effecting the transfer of title by the Register of Deeds. In reply, please be informed as follows: 1. The conveyance of the land and common areas in the condominium project was made without consideration and is not in connection with a sale made to Oxford Suites Condominium Corporation. Inasmuch as the purpose of the conveyance to Oxford Suites Condominium Corporation is for the management of the project for the common benefit of the unit-owners and no taxable income has been generated, therefore, no creditable withholding tax prescribed under Section 2.57(B) of Revenue Regulations No. 2-98, implementing Section 57(B), in relation to Section 27 of the Tax Code of 1997 is payable and collectible. 2. Neither is such conveyance subject to the documentary stamp tax imposed under Section 196 of the same Tax Code. 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." However, the notarial acknowledgement to said Joint Deed of Conveyance of Land and Common Areas is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-178-2003 dated June 5, 2003). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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