BIR Ruling [DA-527-99]

September 13, 1999 BIR RULING [DA-527-99] Pacis & Reyes 8th Floor, Chatham House 116 Valero cor. Herrera Sts. Salcedo Village, Makati City Attention: Atty . Michael Rex Celiz Gentlemen : This refers to your letter dated May 3, 1999 requesting for a ruling that the assignment of the common areas by Bluesphere Properties, Inc. (BPI), in favor of 228 Ortigas Avenue Condominium Corporation (228OACC), is exempt from the payment of the creditable withholding tax, documentary stamp tax and donor's tax pursuant to Section 10 of Republic Act (RA) No. 4726, otherwise known as the "Condominium Act". It is represented that BPI is a domestic corporation and the registered owner of a parcel of land located at 228 Ortigas Avenue, San Juan, Metro Manila covered by Transfer Certificate of Title (TCT) No. 6274-R issued by the Registry of Deeds of San Juan, Metro Manila; that a condominium project was constructed thereon known as SBC Building; that 228OACC was organized for the sole purpose of owning, holding, managing and maintaining the common areas of the condominium project pursuant to and in accordance with RA No. 4726 and the Master Deed and Declaration of Restrictions; that membership in the condominium corporation is limited to the unit owners of the project and such membership cannot be alienated, conveyed or disposed of independently from the unit itself; that any transfer of ownership of the unit automatically transfers the membership in the condominium corporation; that in compliance with Section 10 of RA No. 4726, it intends to convey to 228OACC the common areas of the project as described in Section 4 of the Master Deed and Declaration of Restrictions; that the contemplated transfer of the common areas will not involve any monetary consideration; and that it is your position that the transaction is not subject to the creditable withholding tax, documentary stamp tax and donor's tax. In reply, please be informed that the contemplated transfer/assignment by BPI of the common areas of the SBC Building Condominium Project in favor of 228 Ortigas Avenue Condominium Corporation is not subject to the creditable withholding tax imposed under Revenue Regulations (RR) No. 2-98 implementing Section 57(B) of the Tax Code of 1997 considering that such contemplated transfer is without monetary consideration and not in connection with a sale made to the condominium corporation, 228OACC, but was in compliance with the requirements of the Condominium Act or RA No. 4726, hence, no income will be generated and a fortiori, no income will be payable and collectible thereon. Moreover, 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," hence, the said contemplated assignment/transfer is not likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the Deed to be executed for the purpose, is subject to the documentary stamp tax imposed under Section 188 of the Tax Code of 1992. (BIR Ruling No. 182-93 dated May 4, 1993; 212-93 dated May 14, 1993; DA-030-96; DA-087-96; DA-234-96) Furthermore, such lack of consideration does not, likewise, render the said contemplated transfer/assignment subject to the donor's tax prescribed under Section 98(A) and (B) in relation to Section 99, both of the Tax Code of 1997, since, there is no intention on the part of BPI to donate the said common areas of SBC Building contemplated merely in compliance with the Condominium Act specifically, Section 10 of RA No. 4726. 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. LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)