BIR Ruling [DA-457-04]

August 27, 2004 BIR RULING [DA-457-04] Sec. 176 039-2002; DA-131-2004 Ms . Ruby Bairan 1001/F, Rufino Building Ayala Avenue, Cor. Herrera Street Makati City M a d a m : This refers to your undated letter requesting, in effect, for a ruling that the transfer of real properties by the Balintawak Construction Supply Corporation (BCSC for brevity) in favor of its withdrawing stockholders pursuant to a partial liquidation of its corporate assets is not subject to capital gains and documentary stamp taxes imposed under Sections 27(D)(5) and 196, respectively, both of the Tax Code of 1997. It is represented that Paul Vincent, Pablo III, Barnett and Anneline, all surnamed Bairan and yourself, collectively own 13,650 shares in BCSC; that on June 3, 2003 BIR Ruling No. DA-174-2003 was issued by this Office in your favor wherein it was ruled, in effect and among others, that the transfer of real properties by BCSC in favor of its stockholders (the Bairan siblings) as liquidating dividends in contemplation of its partial liquidation is not subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997, and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as amended; and that presently and in continuation of the above partial liquidation of BCSC and for the specific purpose of redeeming in full the 1,206.01 shares of stock covered by Stock Certificate No. 102 issued in the name of Pablo Bairan III, one of the heirs, BCSC executed the following: 1) Twenty-eight Deeds of Conveyance ceding in favor of the heirs of Pablo Bairan, Jr. twenty-eight (28) residential lots in the subdivided portion of the corporate property located at Camarin Subdivision, Barangay 175, Kaloocan City, all covered by the mother title, Transfer Certificate of Title (TCT) No. (52676) 14589 of the Registry of Deeds of Kaloocan City; 2) A Deed of Conveyance ceding in favor of the same heirs a parcel of land located at Potrero, Malabon City, covered by TCT No. 55081 issued by the Registry of Deeds of Malabon; 3) A Deed of Conveyance ceding in favor of the same heirs an untitled parcel of land located at Makansas corner Mesina Sts., Panghulo Subdivision, Panghulo, Malabon City, with an area of 266 square meters, the technical description of which is found in Tax Declaration ARPN No. B-015-03638 of the Assessor's Office of Malabon City. In reply, please be informed that the transfer by the liquidating corporation of its remaining assets to its stockholders is not considered a sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation ( cited in BIR Ruling No. DA-131-2004 dated March 26, 2004 ). Such being the case, a liquidating corporation is not subject to tax on its receipt of the shares surrendered by its stockholders pursuant to a complete or partial liquidation. Anent the above, Section 73(A) of the Tax Code of 1997 provides in part, that "where a corporation distributes all its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is taxable income or deductible loss, as the case may be." Accordingly, the gain, i . e ., the difference between the fair market value of the properties received vis--vis the cost basis of the shares to the stockholders, that may be realized by a stockholder shall be subject to the ordinary income tax. A corporation that distributes its assets to its shareholders as liquidating dividends is not deemed to be selling such assets to the latter, and therefore, said transaction is not subject to the documentary stamp tax. ( BIR Ruling No. 039-02 dated November 11, 2002 citing BIR Ruling No. 092-99 dated July 8, 1999 ). Applying the foregoing in the instant case, the transfer by BCSC of its real properties to the Bairan siblings as liquidating dividends, in proportion to their shareholdings, therefore, is not subject to DST imposed under said Section 196 of the Tax Code. The notarial certification on the deed of assignment is, however, subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Tax Code. ISEHTa This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group