Tax consequence of the Registration and Transfer of Six (6) Units of Residential Condominium in the Name of Norvic, Inc. (NORVIC)

March 7, 1995 BIR RULING NO. 049-95 50 (b) 000-00 049-95 Norvic, Incorporated Paraaque, Metro Manila Attention: Atty Vicente C . Santos President Gentlemen : This refers to your letter dated October 25, 1994 stating that Norvic, Inc. (NORVIC) is the owner of the Overseas Superintendence Corp. (OVERSEAS), a corporation which is inactive but owning a parcel of land situated in Yakal St., Makati, Metro Manila with an area of 1,179 square meters; that sometime in the middle of 1986, NORVIC entered into a Contract to Sell the 21,700 total outstanding shares of OVERSEAS with St. Michael International Institute of Technology (INSTITUTE) for a consideration of Four Million Pesos (P4,000,000.00) payable on installments; that several payments were made, the biggest of which was in the amount of Two Million Pesos (P2,000,000.00) which came from the proceeds of a loan taken by the buyer (INSTITUTE) but secured by the afore-said property of OVERSEAS with the conformity of NORVIC; that the entire consideration of the contract was never paid and there remained two (2) installment payments that became overdue in the amount of Six Hundred Thousand Pesos (P600,000.00) plus interest for about two (2) years; that the management of the INSTITUTE proposed a project to continue its relationship with NORVIC i.e. to put up a condominium residential building on the lot of OVERSEAS and to give NORVIC a share on the finished building in payment for the same shares of stock of OVERSEAS which was the subject of the Contract to Sell between NORVIC and the INSTITUTE; that before the construction of the said building, the INSTITUTE formed a realty company called St. Michael International Realty and Management Corp. (REALTY), which would enter into a formal contract with NORVIC on the proposed project; that before the contract can be executed , the REALTY appropriated the afore-said lot by transferring it to the INSTITUTE; that the INSTITUTE transferred the said property after it has acquired it fraudulently; that because of the fraudulent and criminal acts of the INSTITUTE , NORVIC was forced to file civil and criminal cases against the INSTITUTE, the REALTY and the management and owners thereof; that after the issues were joined, several court hearings ensued with the parties finally reaching an amicable settlement; that a Memorandum of Agreement was executed and signed by the parties thereto which was approved by the court leading to the assignment of six (6) condominium units to NORVIC as payment for the aforesaid lot of OVERSEAS thus squashing and dismissing all the claims and counter-claims of both parties; that the basis for the valuation of the six (6) condominium units to be given to NORVIC was made by taking into consideration the payments already made, the interest and the value of the lot in question at the time it was fraudulently acquired by the REALTY ; that the value of the six (6) condominium units determined at Four Million Pesos (P4,000,000.00); and that the Memorandum of Agreement also gave the REALTY an option to repurchase the six (6) condominium units for an amount specified therein which lapsed after the end of March 1993 and gave Norvic the right to finally transfer the six (6) condominium units in its name. cdpr Based on the foregoing, you now request for opinion on the tax consequence of the registration and transfer of the aforementioned six (6) units of residential condominium in the name of NORVIC. In reply, please be informed that since in the instant case, the assignment by REALTY of the aforesaid six (6) condominium units in your favor was made as compensation for your aforementioned lot which the INSTITUTE fraudulently appropriated upon itself and subsequently transferred to REALTY, the said assignment is not therefore a sale or exchange or other disposition of real property within the contemplation of Revenue Regulations No. 1-90 as amended by Revenue Regulations No. 12-94, hence, it is not subject to the creditable withholding tax imposed, under the aforesaid Regulations. Moreover, under Section 196 of the Tax Code, as amended, there shall be collected a documentary stamp tax at the rate provided therein on all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government , whereby any lands, tenements or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or to any other persons designated by such purchaser or purchasers. Such being the case, and since the transfer in your favor the six (6) condominium units was made as a compensation of your aforesaid lot and not as a purchaser of the same, the Deed of Assignment executed by Realty in your favor is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment to said deed is subject to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended. 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. prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue