Conveyance of the Real Property by the Corporation to Its Stockholders in the Form of Liquidating Dividends is Subject to Documentary Stamp Tax

December 23, 1991 BIR RULING NO. 270-91 66 000-00 270-91 Gentlemen : This refers to your letter dated March 4, 1991 stating that Montiel, Inc. is a duly registered domestic corporation incorporated in 1965 and doing business solely in the Philippines; that it is engaged in the realty business actually owns only a parcel of land with certain improvements; that it now intends to shorten the life of its corporate existence and dissolve its business operations which will require the distribution of its assets consisting of said real property to the stockholders in the form of liquidating dividends; and that the distribution of the said real estate property by the corporation to its stockholders will involve conveyance of title and ownership in said real property to its stockholders. cdtech In connection therewith, you now request a ruling as to whether the conveyance of the aforesaid real property by the corporation to its stockholders in the form of liquidating dividends is subject to documentary stamp tax. In reply thereto, please be informed that the Deed of Conveyance of the aforementioned property as liquidating dividends to be executed by the corporation in favor of its stockholders is subject to documentary stamp tax. (Section 173, Tax Code, as amended) In all cases involving sale, exchange or any disposition of real property as in this case, where real property is being distributed, by the corporation to its stockholders as liquidating dividends, the tax base for documentary stamp tax purposes is the fair market value or zonal value of the real property. (RMO No. 41-91) The stockholders who will receive a portion of the parcel of land as liquidating dividends upon the surrender of his corresponding shareholding realizes capital gain or loss. The gain, if any, derived by the individual stockholders consisting of the difference between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of their respective shareholding in the corporation (Sec. 66 (a); Sec. 256, Income Tax Regulations) shall be subject to income tax at the rates prescribed under Section 21 (a) of the Tax Code, as amended by Executive Order No. 37. Moreover, pursuant to Section 33 (b) of the Tax Code, as amended, only 50% of the aforementioned capital gain is reportable for income tax purposes if the shares were held by the individual stockholders for more than twelve months and 100% of the capital gains if the shares were held for less than twelve months. Moreover, the distribution by Montiel, Inc. to its stockholders as liquidating dividends of its assets consisting of a parcel of land in complete liquidation or dissolution is not subject to the creditable withholding tax on sales, exchanges or transfers of real property under Revenue Regulations No. 1-90, as implemented by Revenue Memorandum Circular No. 7-90. After payment of the corresponding documentary stamp tax, the real property may be registered by the Register of Deeds concerned in the name of the stockholders. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner