Tax Consequence of Distribution of Real Property as Dividends to Stockholders

December 17, 1986 BIR RULING NO. 274-86 21 (c) (2) 000-00 274-86 Gentlemen : This refers to your letter dated August 14, 1986 requesting, in effect, a ruling as to whether your client, Syquia Development Corporation can distribute to its stockholders certain parcels of real properties owned by it but not used in its business, as property dividends; and whether such dividend distribution is subject to the 15% final withholding tax under Section 21(c)(2) of the Tax Code, as amended by Executive Order No. 37. It is represented that Syquia Development Corporation is engaged in the business of leasing or renting out real properties which are owned and held in its own name; that part of its real property holdings are not being used in its business operations nor are being offered for rent or lease; that neither are said properties presently encumbered by any claims, liens or mortgages; that the corporation has sufficient unrestricted retained earnings for the declaration of dividends; and that on July 2, 1986, the Board of Directors declared the distribution of dividends payable in property in lieu of cash in favor of its stockholders who are all individual persons. In reply thereto, I have the honor to inform you that dividends comprise any distribution whether in cash or other property, in the ordinary course of business, even though extra-ordinary in amount, made by a domestic or resident foreign corporation to the stockholders out of its earnings or profits. Moreover, dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested, are income to the recipients to the amount of the full market value of such property when receivable by individual stockholders. (Sections 250 and 251, Income Tax Regulations) Such being the case, your client can distribute the aforementioned real properties as property dividends to its stockholders who shall be subject to a final tax of 15% on the market value of the property declared as dividends pursuant to Section 21(c)(2) of the Tax Code, as amended by Executive Order No. 37. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue