BIR Ruling [DA-556-99]

September 28, 1999 BIR RULING [DA-556-99] Landmate Estate Development Corporation 88 Mulawinan Street Lawang Bato, Valenzuela Metro Manila Attention: Mr . David K . Avelino President Gentlemen : This refers to your letter dated August 20, 1999 stating that Landmate Estate Development Corporation (Landmate), a corporation duly organized and existing under the laws of the Philippines; that Landmate is the absolute and registered owner of twelve (12) parcels of land located in Valenzuela, Metro Manila covered by TCT Nos. V-40569, 40570, 40571, 40572, 40573, 39934, 40567, 39929, 39933, 39932, 39931 and 39930 issued by the Registry of Deeds for Valenzuela; that because of the prevailing economic crisis, Landmate was forced to retire from business which remained inactive for the past two and a half (2) years; that in a special meeting duly held on August 20, 1999, the stockholders unanimously approved and resolved that David K. Avelino be appointed as the administrator/liquidator with full authority to effect the assignment of the real estate properties of the said corporation, to sign, execute and deliver the pertinent documents to the respective stockholders, and to do any and all acts necessary to effect the smooth and effective distribution and assignment of the above-mentioned properties to the stockholders as a return of their respective investments; that as of August 20, 1999, the stockholders of record of Landmate together with their number of shares are as follows: LibLex Name No. of Shares David K. Avelino 420 shares Edwin K. Avelino 415 " Soriano K. Avelino 415 " Anthony P. So 415 " William P. So 420 " Jeffrey P. So 415 " Total 2,500 shares ========= and that on August 20, 1999, a Deed of Assignment was executed by David K. Avelino in favor of the above-mentioned stockholders whereby the former distributed as return of investment the assets of the said corporation in the following manner. In favor of TCT No. Jeffrey P. So V-40569 V-40570 William P. So V-40571 V-40572 Anthony P. So V-40573 V-39934 David K. Avelino V-40567 V-39929 Edwin K. Avelino V-39933 V-39932 Soriano K. Avelino V-39931 V-39930 In connection therewith, you now request for a ruling as to the tax implication on the assignment of the above-mentioned properties by Landmate to its stockholders in the form of liquidating dividends. cdlex In reply, please be informed as follows: 1. The stockholders of Landmate shall realize capital gain or loss when Landmate distributes to them its asset as liquidating dividends; and that the capital gain, if any, shall be subject to the final capital gains tax imposed under Section 24(C) and 27(D)(2) of the Tax Code of 1997. (BIR Ruling No. 015-82, dated 20 January 1982; BIR Ruling No. 19-80, dated 6 October 1980.); 2. The conveyance of several parcels of land of Landmate in the form of liquidating dividends shall be subject to documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 270-91, dated 23 September 1991.); In all cases involving sale, exchange or any disposition of real property as in this case, where real properties are 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, whichever is higher. (RMO No. 41-91) After payment of the corresponding DST, the parcels of land conveyed by Landmate in the form of liquidating dividends may be registered by the Register of Deeds concerned in the name of the stockholders. 3. The conveyance of the said parcels of land in the form of liquidating dividends shall not be subject to the creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulation 2-98. (BIR Ruling No. 270-91, dated 23 December 1991.); 4. The sale by the stockholders of Landmate of the distributed assets received by them as liquidating dividends immediately after title thereto is transferred to their names shall be subject to the final capital gains tax of 6% imposed under Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997 depending on whether the seller is a resident individual or a corporation. The said sale shall also be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997; and 5. Considering that Landmate is a real estate firm, inventories of its real properties prior to the distribution of liquidating dividends and existing as of such retirement or cessation of business shall be subject to VAT under Sec. 106(B)(4) and (C) of the Tax Code of 1997. llcd 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 & Enforcement Group)