Exemption from 5% Creditable Withholding Tax - Transfer in Liquidation of Land and Building

April 17, 1990 BIR RULING NO. 059-90 196 010-90 059-90 Gentlemen : This refers to your letter dated March 1, 1990 requesting in behalf of your client, Owl Realty Corporation (Owl), confirmation of your opinion to the effect that the distribution in liquidation of the assets of Owl Realty Corporation, consisting of land and building to its sole stockholder, the SGV & Company Provident Plan, a duly qualified BIR-registered tax-exempt employee benefit plan is not subject to the documentary stamp taxes and to the 5% creditable withholding tax imposed on the sale, exchange or transfer of real property. cdtech It is represented that Owl is a domestic corporation, the entire outstanding capital of which is owned by the SGV & Co. Provident Plan; that SGV & Co. Provident Plan is a qualified retirement plan within the contemplation of Section 28(b)(7)(A) of the Tax Code; that Owl was dissolved upon the issuance by the Securities and Exchange Commission (SEC) on May 31, 1989 of the Certificate of Amendment of Articles of Incorporation shortening its corporate life; that Owl now wants to distribute its remaining assets consisting of land and building to its sole stockholder, the SGV & Co., Provident Plan; and that in BIR Ruling No. 368-88, August 3, 1988, it was confirmed that the SGV & Co. Provident Plan, a qualified employees' retirement plan, will not be subject to income tax on the assets that it will receive in complete liquidation. In reply, please be informed that Section 189 of Revenue Regulations No. 26 otherwise known as the Documentary Stamp Tax Regulations provides, viz: "Sec. 189. Conveyances by Corporation to Owner of all the Capital . A conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax." It is clear from the above-quoted section of Revenue Regulations No. 26 that a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to an owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. Accordingly, your opinion that the distribution in liquidation of the assets of Owl, consisting of land and building to its sole stockholder, the SGV & Company Provident Plan, a duly qualified BIR-registered tax-exempt employee benefit plan is not subject to documentary stamp tax is hereby confirmed. Moreover, Revenue Regulations No. 1-90 does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's shares of stock for cancellation by the corporation. This conveyance is without any consideration. The transfer by the liquidating corporation of its remaining assets to its stockholders is not considered as a sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation. [W.P. Fox & Sons, Inc., Petitioner, v. Commissioner of Internal Revenue Respondent, 15 BTA 115; Jordan Petroleum Company, 13 AFTR 2d 1692 (227 F. Supp. 174); J.T.S. Brown & Son Company v. Commissioner of Internal Revenue, 10 TC 840] Considering that the transfer in liquidation of land and building by Owl for the surrender and cancellation of the shares is not a sale, your opinion, therefore, that the said transaction is not likewise subject to the 5% creditable withholding tax under Revenue Regulations No. 1-90 is hereby confirmed. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner