Elizabeth Place Condominium Corporation

December 19, 2007 BIR RULING [DA-664-07] R.A. No. 4726; DA-056-2003 Elizabeth Place Condominium Corporation 332 H.V. dela Costa Street, Salcedo Village, Makati City Attention: Mr. Philip Lim President Gentlemen : This refers to your letter dated November 15, 2007 requesting for a confirmation that the transfer/conveyance to Elizabeth Place Condominium Corporation of the common areas/limited common areas, facilities and equipment, including the land on which the condominium building stands which was originally registered under the name of its Developer, Ray Burton Development Corporation but was subsequently acquired by China Banking Corporation by virtue of an extrajudicial foreclosure sale, is not subject to withholding tax, value-added tax, capital gains tax, donors tax and documentary stamp taxes, except the documentary stamp tax on the notarial acknowledgment in the Deed of Conveyance. AEDcIH As represented and shown by documents, Ray Burton Development Corporation (RBDC), a domestic corporation was the original registered owner of a parcel of land situated at Makati City, Metro Manila, covered by Transfer Certificate of Title No. 217740, with a total area of 1,277 square meters, more or less and 440 condominium units which it mortgaged to China Banking Corporation (CBC). China Banking Corporation, a domestic corporation organized and existing under Philippine Laws with office address at China Bank Bldg., Paseo de Roxas cor Villar St., Makati City subsequently acquired the above-mentioned parcel of land and condominium units by virtue of an extrajudicial foreclosure sale and is now the registered owner of the land and the condominium building. Withholding tax of P35,000,000.00 and documentary stamp tax of P10,500,000.00 were paid on the sale. Elizabeth Place Condominium Corporation (EPCC) is a non-stock, non-profit corporation formed and organized in accordance with the provisions of R.A. No. 4726 for the purpose of managing and holding title to all the common/limited common areas, facilities and equipment of the condominium project, including the land on which the condominium is located. A Deed of Conveyance was executed on November 15, 2007 by and between CBC, stepping in place of the developer RBDC, and EPCC, whereby the former conveyed title to the said parcel of land, the common/limited common areas of the building, facilities and equipment, in favor of the latter, free from all liens and encumbrances, except those required by law. The Deed of Conveyance was executed without monetary consideration and was neither made in connection with a sale, there being no income generated, but was entered into in pursuance to the requirements of R.A. No. 4726, the Condominium Act, as amended. The Deed of Conveyance is, therefore, sought to be exempted from withholding tax, value-added tax, capital gains tax, donor's tax and documentary stamp tax inasmuch as said conveyance is being done to comply with the requirements of the said Condominium Act, and for the protection of the unit owners. CTHDcE In reply, please be informed that since the Deed of Conveyance above-mentioned is without consideration and is not in connection with a sale made to the condominium corporation, no income was generated 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, pursuant to Section 10 of R.A. 4726, otherwise known as the Condominium Act. 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 monetary consideration are not taxable". In the instant case, RBDC, the developer, is no longer the registered owner of the property, since CBC acquired ownership through a foreclosure proceeding as the highest bidder. However, pursuant to R.A. 4726 (Condominium Act), CBC is obligated to transfer ownership to the condominium corporation for the purpose of the latter's managing and holding title to all the common/limited common areas, facilities and equipment of the condominium project, including the land on which the condominium is located. CBC merely stepped into the shoes of the developer. In view thereof, this Office is of the opinion as it hereby holds that the aforesaid transaction is not subject to the donor's tax and creditable withholding tax prescribed by Section 2.57 (B) of Revenue Regulations No. 2-98, 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 same Code. However, the notarial acknowledgement to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-305-2000 dated February 24, 2000) DETcAH The transfer is also not subject to VAT since under Section 105 of the Tax Code of 1997, only a person who, in the course of trade or business sells, barters, exchanges, leases goods or properties, or who imports goods shall be subject to VAT imposed in Section 106 to 108 of the same Tax Code, as amended. Here, by conveying the common areas, facilities and equipment, including the land on which the condominium building stands, CBC, neither sells, barters, exchanges goods, properties nor renders services to be subject to VAT. However, the Revenue District Office in the place where the subject property is located is not precluded from further investigating as to whether or not the correct taxes were paid when the transfer by RBDC to CBC was made. If upon investigation of the RDO it will be disclosed that incorrect taxes were paid, the same shall collect the deficiency. This tax-free conveyance does not include the transfer of the condominium units to the respective unit owners and prospective unit buyers. 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. THESAD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service