BIR Ruling [DA-610-04]

December 1, 2004 BIR RULING [DA-610-04] Ayala Land, Inc. Tower One, Ayala Triangle Ayala Avenue Makati City Attention: Atty. Maria Angeli L. Ferrer Division Manager Gentlemen : This refers to your letter dated October 27, 2004 stating that Ayala Land, Inc. (ALI) is a real estate corporation organized and existing under the Philippine laws; that it is the registered owner of three (3) parcels of land located at Brent Road, General Upper Luna, Baguio City covered by TCT No. 68345 issued by the Registry of Deeds for Baguio City; that in 1998, ALI constructed and developed a residential condominium complex known as "The Pineridge" on the property and constituted the same as a condominium project pursuant to the provisions of R.A. No. 4726 by registering with the Register of Deeds of Baguio City as Primary Entry No. 2314-26-180 the Master Deed with Declaration of Restrictions for the Pineridge, together with all amendments and supplements thereto and having the same duly annotated on the title to the property; that the Pineridge Condominium Corporation, a non-stock, non-profit corporation existing under Philippine laws was organized on April 7, 1999 primarily to own or hold title to the common areas in the Pineridge Condominium project and manage it pursuant to the Condominium Act and the Master Deed and, secondarily, to promote the interests of the unit owners in the condominium project by adopting measures for the protection and safeguarding of the unit owners and their property and enforcing the limitations and restrictions contained in the Master Deed; and that on May 30, 2003, ALI and the Condominium Corporation executed a Deed of Conveyance whereby ALI ceded, transferred and conveyed to the Condominium Corporation without monetary consideration the property and the common areas of the condominium project, free and clear of all liens, charges and encumbrances, except those annotated on the TCT No. 68345. In connection therewith, you now request confirmation of your opinion that the execution of the Deed of Conveyance whereby the property is conveyed by ALI to the Condominium Corporation without monetary consideration is not subject to income tax under Section 27(A) of the Tax Code, and consequently, not subject to the creditable withholding tax, value-added tax and documentary stamp tax under Sections 106 and 196 of the Tax Code of 1997. In reply, please be informed that since the transfer is without monetary consideration and is not in connection with a sale made to the Homeowners Association, no income was generated and a fortiori ,no creditable withholding tax is payable and collectible. In fact, the sales by ALI of the condominium units are made in favor of the individual unit owners of the condominium project, and the purpose of the transfer to the Pineridge Condominium Corporation of its common and parking 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 soar purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates . . . 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: . . . Inasmuch as the transfer of the common and parking areas and facilities to the Pineridge Condominium Corporation 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 . Furthermore, the transfer of the property and the common areas to the Condominium Corporation is not subject to value-added tax prescribed in Section 106 of the Tax Code of 1997 since the conveyance thereof was not made in connection with a sale or in the ordinary course of trade or business but merely in compliance with the R.A. No. 4726. IN VIEW THEREOF, this Office holds that the aforesaid transfer is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, 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 pursuant to Section 188 of the said Code. ( BIR Ruling No. 550-93 dated December 29, 1993; DA419-96 dated November 12, 1996 ) This will therefore serve as an authority for the Revenue District Officer having jurisdiction over the place where the property is located to issue the corresponding Certificate Authorizing Registration/Tax Clearance Certificate to enable the transfer of the property and the common areas to the Pineridge Condominium Corporation without need of presentation of proof of payment of the creditable withholding tax and documentary stamp tax. aESICD 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service