BIR Ruling [DA-597-99]

October 7, 1999 BIR RULING [DA-597-99] Crossroad Marketing, Inc. 109 Malakas Street Quezon City Attention: Mr . Gerry Q . Go President Gentlemen : This refers to your letter dated July 7, 1999 stating that Crossroad Marketing, Inc. (Crossroad) is a corporation duly organized and existing under Philippine laws; that it is the registered owner of a parcel of land containing an area of 600 square meters and covered by TCT No. RT-8694(285433) issued by the Registry of Deeds for Quezon City together with a four (4) storey commercial and residential building with a total floor area of 1,054 sq. m. consisting of 4-units commercial, 2-units office and 7-units residential condominium with a common area totaling 504 sq. m. located at 109 Malakas Street, Quezon City; that in view of the poor business returns coupled with the high cost of commodities, Crossroad was forced to close shop as of December 31, 1987; that Crossroad is now existing for the sole purpose of collecting all outstanding receivables and eventual liquidation of all its assets and liabilities, if any; that Crossroad is in the process of applying for the conversion of the building into a residential condominium with the Housing and Land Use Regulatory Board (HLURB); that the main purpose of the conversion is to finally liquidate its only asset, close the books of the company and at the same time, assign individual titles and ownership of the residential condominium units to its respective rightful owners, except for Gregory Q. Go, who will be given CMI townhouse unit 2 located at No. 41 Masikap Street, Pinyahan, Quezon City, who are all members of the Board of Directors of Crossroad; that the building is now occupied by immediate members and stockholders of the Crossroad who have unanimously approved the proposed conversion; that at a Special Meeting held on May 7, 1993 at its principal office, it was resolved that Crossroad hereby authorizes the President, Gerry Q. Go, to represent the company and sign in its behalf all documents pertaining to the application for conversion of CMI Building into a residential condominium with the Housing and Land Use Regulatory Board; and that on October 15, 1998, thirteen (13) separate Deeds of Assignment were executed by Crossroad in favor of the following stockholders: LexLib Name CCT No. Unit No. Floor Floor Area Gordon Q. Go N-21736 101 Ground 46.00 sq. m N-21737 102 Ground 46.00 sq. m N-21742 203 Second 60.00 sq. m N-21743 301 Third 150.00 sq. m N-21744 302 Third 67.50 sq. m George Q. Go N-21740 201 Second 180.00 sq. m N-21741 202 Second 60.00 sq. m Gerry Q. Go N-21738 103 Ground 46.00 sq. m N-21739 104 Ground 46.00 sq. m N-21746 401 Fourth 150.00 sq. m Gloria Q. Go N-21745 303 Third 67.50 sq. m N-21747 402 Fourth 67.50 sq. m N-21748 403 Fourth 67.50 sq. m In connection therewith, you now requesting for a ruling as to the tax implication on the conveyance of the aforementioned parcel of land together with the improvements thereon by Crossroad to its stockholders in the form of liquidating dividends. cdlex In reply, please be informed as follows: 1. The stockholders of Crossroad shall realize capital gain or loss when Crossroad 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 Sections 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 the above-mentioned parcel of land together with the improvements thereon of Crossroad 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 said parcel of land together with the improvements thereon conveyed by Crossroad 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 parcel of land together with the improvements thereon 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.); and 4. The sale by the stockholders of Crossroad 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. 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)