Transfer of Properties to Stockholders as Property Dividends Not Taxable

December 20, 1993 BIR RULING NO. 498-93 TRANSFER OF PROPERTIES TO STOCKHOLDERS AS PROPERTY DIVIDENDS NOT TAXABLE 50 (b) 130-89 498-93 Pastelero Law Office Third Floor, Universal Reinsurance Bldg. 106 Paseo de Roxas, Makati Metro Manila Attention: Atty . Antonio C . Pastelero This refers to your letter dated June 24, 1991, requesting confirmation of your opinion that the proposed transfer by your client, Libra Agro-Industrial Development Corporation of real properties to their stockholders by way of property dividend, is exempt from the payment of the following: prcd a) The 5% creditable withholding tax prescribed under Revenue Regulations No. 1-90; and b) Documentary stamp tax imposed under Section 196 of the Tax Code. It is represented that on November 5, 1990, your client declared property dividends to all stockholders of record as of November 15, 1990; that among the properties declared as dividend were parcels of land; that said property dividend was approved by the Securities and Exchange Commission on December 17, 1990; that the Deeds of Assignment covering the transfer of the said parcels of land to the stockholders will be executed after receipt of the confirmation being requested; and that you are of the opinion that since the law does not recognize any gain or loss whenever property is transferred by a corporation to its stockholders by way of dividend but instead defers the tax consequences upon the subsequent sale or disposition of the property, no withholding tax is necessary at the date of the transfer of the property or property dividend and the Deed of Assignment is not subject to documentary stamp tax because conveyance without consideration is not taxable. In reply, please be informed that under Section 21(c) (2) of the Tax Code, as amended, dividends received from a domestic corporation and the share of an individual partner in a partnership subject to tax under Section 24(a) shall be taxed at the rate of 15% in 1986; 10% effective January 1, 1987; 5% effective January 1, 1988; and 0% effective January 1, 1989. Such being the case, your opinion that since your client, Libra Agro-Industrial Development Corporation declared on November 5, 1990 property dividend to all its stockholders of record as of November 15, 1990, the said property dividend is no longer subject to income tax and consequently to the creditable expanded withholding tax imposed under Revenue Regulations No. 1-90, implementing 50(b) of the Tax Code, as amended, is hereby confirmed. Moreover, under Section 185 of Regulations No. 26, as amended, otherwise known as the Documentary Stamp Tax Regulations, conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. In view thereof, and considering that the proposed transfer of the said property dividend to the stockholders of your client is not in connection with a sale or its sale and the same is without any monetary consideration, this Office likewise confirms your opinion that the Deed to be executed to effect the transfer of such property dividend to the stockholders of your client is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. The acknowledgment however, of said Deed of Conveyance is subject to the documentary stamp tax (P3.00) on certificates pursuant to Section 188 of the Tax Code. LLphil LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue