BIR Ruling [DA-466-03]

December 5, 2003 BIR RULING [DA-466-03] BIR Ruling No. 039-02; Secs. 196 & 188 City & Land Developers, Inc . 2nd/3rd Floors, Cityland Condominium 10 Tower I 6815 Ayala Avenue, Makati City Attention: Atty . Emma Jularbal Legal Counsel Gentlemen : This refers to your letter dated February 29, 2000 requesting for a reconsideration of BIR Ruling No. DA-685-99 dated December 10, 1999 issued in your favor with respect to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, on the aspect that reads: ". . . transfer of the sole asset or real property of Carvintage in the form of liquidating dividends shall be subject to the documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997 . (BIR Ruling No . 270-91 dated September 23, 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) " In reply, please be informed that pursuant to Section 189 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations," a conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax . Under this provision, a distribution in liquidation of the assets of a corporation consisting of real estate, without valuable consideration, is not subject to DST imposed under Section 196 of the Tax Code of 1997. Moreover, Section 196 of the Tax Code speaks of "all conveyances, deeds, instruments, or writings, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser or purchasers , or to any other person or persons designated by such purchaser or purchasers , at the rate of P15.00 for every P1,000, or a fraction thereof, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6(E) of the same Tax Code, whichever is higher: . . .." The distribution of assets of the corporation to its stockholders or existing stockholders in liquidation of the business without consideration is viewed as a return of capital to the shareholders. Considering this, Section 196 of the Tax Code of 1997 shall not apply. Thus, it has been held that a corporation that distributes its assets to its shareholders as liquidating dividends is not deemed to be selling such assets to the latter. As held in BIR Ruling No. 039-02 dated November 11, 2002 citing BIR Ruling No. 092-99 dated July 8, 1999, involving a similar set of facts wherein by way of liquidating dividends there was a conveyance by a corporation of its assets to its stockholders and therefore, without consideration was held as not subject to documentary stamp tax on such conveyance. Accordingly, the transfer by Carvintage of its sole asset to the stockholders in the form of liquidating dividends, not being in connection with a sale and was made without monetary consideration, is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial certification on the proposed deed of conveyance to effect the transfer of such property dividends to the stockholders is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code. (BIR Ruling No. 039-02 dated November 11, 2002) SHIcDT This modifies BIR Ruling No. DA-685-99 dated December 10, 1999 with respect to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 earlier issued in your favor. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group