BIR Ruling [DA-510-05]

December 16, 2005 BIR RULING [DA-510-05] Villareal Rosacia Dio & Patag Ground Floor, ECJ Building Arzobispo corner Real and Sta. Lucia Intramuros, Manila Attention: Atty. Tarcisio A. Dio Gentlemen : This refers to your letter dated November 24, 2005 requesting for a ruling that the conveyance by G&E Realty and Development Corporation (G&E Realty), developer/assignor, of the common areas, including the land of a condominium project known as ECJ Building Project, to the ECJ Condominium, Inc. (ECJ Condo) is exempt from the capital gains tax/creditable withholding tax and documentary stamp tax. It is represented that G&E Realty is a domestic corporation engaged in the realty business with offices at 5th Floor, ECJ Condominium Building, Real corner Arzobispo Streets, Intramuros, Manila and is the registered owner of a parcel of land located at Calle Real, Arzobispo and Sta. Lucia, Intramuros, Manila, covered by TCT No. 154149 of the Registry of Deeds for Manila, containing an area of 2,795.60 square meters; that G&E Realty constructed a five-storey office condominium project known as the ECJ Building Project in accordance with the Condominium Act and the Master Deed with Declaration of Restrictions duly annotated as Entry No. 8548/T-154149 as well as the Amendment to Master Deed with Declaration of Restrictions of the ECJ Building Project duly annotated as Entry No. 8897-8898/T-154149 in the Memorandum of Encumbrances of TCT No. 154149; that the Master Deed provides for the creation or establishment of a condominium corporation that shall constitute the managing body of the project; that pursuant to the Master Deed with Declaration of Restrictions, ECJ Condo was incorporated under Philippines laws, as a non-profit and non-stock corporation for the purpose of maintaining and administering the common areas and facilities of the project, including the Land and enforcing and administering the restrictions and other terms and conditions of the Master Deed; that all of the condominium units in the project have been sold to parties who now comprise the members of the ECJ Condo; that conformably with the Condominium Act and the Master Deed and for a more efficient management, administration and maintenance of the project, G&E Realty transferred and conveyed the Land and the other common areas of the project to ECJ Condo, by virtue of a Deed of Conveyance executed by G&E Realty in favor of ECJ Condo dated November 22, 2005; and that the transfer and conveyance of the Land and the other common areas of the project to ECJ Condo is without any monetary consideration and is not in connection with any sale made to ECJ Condo. In reply, please be informed that since the Deed of Conveyance is without consideration and is not in connection with a sale made to the ECJ Building Project, no income was generated and a fortiori , no capital gains tax or creditable withholding tax is payable and collectible. In fact, the sales by G&E Realty of the condominium units were made in favor of the individual unit owners of the ECJ Building Project, and the purpose of the conveyance to the ECJ Condo of its common areas and facilities is for its management, and for the common benefit and enjoyment of the members-unit owners. ( Section 10, R.A. No. 4726 ) Moreover, Section 196 of the Tax Code of 1997 provides that on all conveyance, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, 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, there shall be collected a documentary stamp tax, at the rates xxx prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the said Code, whichever is higher: xxx. Inasmuch as the assignment of the common areas and facilities to the ECJ Condo is not in connection with a sale, the same is not subject to documentary stamp tax prescribed in Section 196 of the said Code, supra . In view thereof, this Office is of the opinion as it hereby holds that the aforesaid conveyance is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, Implementing Section 57(B) in relation to Section 27 of the Tax Code of 1997. Neither is it subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the said Code. ( BIR Ruling No. 550-93 dated December 29, 1993; DA419-96 dated November 12, 1996 ) 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service