BIR Ruling [DA-520-99]

September 10, 1999 BIR RULING [DA-520-99] Cayaga, Zuiga & Angel Law Offices 2nd Floor, One Corporate Plaza 845 Pasay Road, Legaspi Village Makati City Attention: Attys . Benjamin L . Angel & Ma . Grace Lechelle P . Soriano Gentlemen : This refers to your letter dated March 18, 1999 requesting for a confirmation of your opinion 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; "2. That the Deed of Conveyance of realty not in connection with a sale to the condominium corporation without consideration is not subject to the documentary stamp tax imposed by Section 196 of the Tax Code pursuant to Section 185, Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations; and "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." It appears that Meridien Property Ventures, Inc. (MVPI), a corporation engaged in the development of condominium projects entered into a Memorandum of Agreement/Joint Venture Agreement with Unity Fishing Development Corporation (UFDC) for the development of a parcel of land; that UFDC is the registered owner of the said parcel of land with an area of 1,283 sq.m. located along ADB Avenue, Ortigas Center, Pasig City covered by Transfer Certificate of Title No. PT-85368 of the Registry of Deeds for Pasig, Metro Manila; that the aforementioned parcel of land, the building and the other improvements constructed thereon is the "Medical Plaza Ortigas" condominium project; that pursuant to the provisions of the Master Deed with Declaration of Restrictions as provided for by the Condominium Act, Medical Plaza Ortigas Condominium Corporation (MPOCC) was organized for the purpose of holding title to, managing and maintaining the common areas of the said project including the above-described parcel of land; that MPVI and UFDC have formally turned-over the management of the common areas to MPOCC; and that MPVI and UFDC have executed a Deed of Conveyance of the above said parcel of land in favor of MPOCC. prcd In reply, please be informed as follows: 1. The transfer/conveyance of the land and the common areas of the Medical Plaza Ortigas condominium project by MPVI and UFDC in favor of MPOCC pursuant to Section 10 of R.A. No. 4726, otherwise known as the Condominium Act, does not constitute a taxable transaction. A transaction whereby nothing of exchangeable value comes to or is received by the taxpayer does not give rise to or create taxable income, and a fortiori , no creditable withholding tax is payable and collectible. The purpose of the conveyance to the condominium corporation is for the management of the project for the common benefit of the unit-owners. On the basis of the foregoing, this Office is of the opinion as it hereby holds that the Deed of Conveyance is not subject to any creditable withholding tax under Section 57(B) in relation to Section 27 of the Tax Code of 1997. 2. 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." Such being the case, the Deed of Conveyance of the land and common areas of the condominium project is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, its notarial acknowledgment is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. 3. The last paragraph of Section 56(A)(3) of the Tax Code of 1997, provides that "No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner of his duly authorized representative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid." cdlex In view thereof, a BIR clearance is required for the purpose of recording the transaction and effecting the transfer of title by the Register of Deeds from the transferor, MPVI and UFDC to the transferee, MPOCC. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)