BIR Ruling [UN-024-95]

January 11, 1995 BIR RULING [UN-024-95] Bautista Picazo Buyco Tan & Fider 8th Floor, Singapore Airline Bldg. 138 H.V. dela Costa St., Salcedo Village Makati, Metro Manila Attention: Atty . Antonio A . Picazo Gentlemen : This refers to your letter dated December 15, 1994 stating that your client, AB Capital and Investment Corporation (ABCIC) is a domestic corporation engaged in business as an investment house with a quasi-banking license; that ABCIC has an authorized capital stock of P500,000,000 divided into 5,000,000 common shares of stock, all with a par value of P100.00 per share, of which 2,811,210 common shares of stock are issued and outstanding as of October 31, 1994; that as of October 31, 1994, ABCIC's total stockholders' equity amount to P681,639,205.05, which include unrestricted retained earnings in the amount of P379,010,748.06; that on November 21, 1994, ABCIC declared P332,000,000 of its unrestricted retained earnings as of October 31, 1994 as dividend in favor of stockholders of record as of November 21, 1994; that said dividends will be distributed in the form of cash and property dividends, i.e., in the amount of P204,547,667 as cash and real properties set forth in Schedule A (Schedule of Property Declared as Dividend) i.e. Asian Plaza 1 Condominium units together with the improvements with a net book value of P127,452,333 which covers all units except units G-7, 207 and 225; that for the purpose of satisfying the declared dividend, the real properties were valued at book value; that the real properties to be distributed as property dividends are capital assets of ABCIC which are not used and not intended to be used by it in the ordinary course of its business; that said real properties declared as dividend were also recorded in the books of ABCIC at their book values, which total book value is equivalent only to 10.15% of ABCIC's assets for the year ended October 31, 1994; and that ABCIC continues to do business and its stockholders have no intention of liquidating ABCIC as a corporate entity after the declaration of the aforementioned property dividends. cdtech In connection therewith, you are requesting confirmation of your opinion as follows: "1. The declared property dividends consisting of real properties will be recorded at their book values in the books of ABCIC and the ABCIC stockholders receiving the same can record the dividend thus received at the book value reflected in the books of ABCIC; "2. The declared property dividend which shall be received by the stockholders shall be subject to a final withholding tax of zero percent (0%), and the receiving stockholders shall not be subject to any income or capital gains arising from their receipt of said real properties as property dividend; "3. ABCIC, as the issuing corporation, shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real properties declared and distributed as property dividends; "4. In the case of Retirement Funds which are stockholders of ABCIC, upon subsequent sale, exchange or other disposition by said Retirement Funds of their ownership interest in the real properties received as property dividend, the basis of the taxation of said subsequent sale, exchange or other disposition of the real properties shall be their book values at the time of dividend distribution. However, any income derived by said Retirement Funds from a subsequent sale, exchange or other disposition of the real properties received as property dividends shall not be taxable considering that they are employee's trusts forming part of pension, stock bonus or profit sharing plans of certain companies for the benefit of their employees duly registered with the BIR, which under the TaxCode are exempted from all kinds of income tax (Section 53(b), N IR C), and which tax exemption is confirmed and settled in the case of Commissioner of InternalRevenuevs. CourtofAppeals, Court of Tax Appeals and GCL Retirement Plan (207 SCRA 487); "5. The Deed of Conveyance to be executed between ABCIC and its stockholders to effect the transfer of the real properties declared as property dividend to said stockholders shall not be subject to the documentary stamp tax imposed under Section 196 of the N IR C as amended, considering that the transfer or conveyance of the real properties to the stockholders is not a sale or is without any monetary consideration (Section 185, RegulationsNo.26, as amended). However, the acknowledgment of the Deeds of Conveyance before a notary public is subject to documentary stamp tax of P10.00 pursuant to Section 188 of the N IR C as amended; "6. . . . " In reply thereto, please be informed that your opinion on the following, viz: 1. The declared property dividends consisting of real properties will be recorded at their book values in the books of ABCIC; and the ABCIC stockholders receiving the same can record the dividend thus received at the book value reflected in the books of ABCIC; 2. The declared property dividend which shall be received by the stockholders shall be subject to a final withholding tax of zero percent (0%), and the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of said real properties as property dividend; 3. ABCIC, as the issuing corporation, shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real properties declared and distributed as property dividends; 4. In the case of Retirement Funds which are stockholders of ABCIC, upon subsequent sale, exchange or other disposition by said Retirement Funds of their ownership interest in the real properties received as property dividend, the basis of the taxation of said subsequent sale, exchange or other disposition of the real properties shall be their book values at the time of dividend distribution. However, any income derived by said Retirement Funds from a subsequent sale, exchange or other disposition of the real properties received as property dividends shall not be taxable considering that they are employees' trusts forming part of pension, stock bonus or profit sharing plans of certain companies for the benefit of their employees duly registered with, and approved by the BIR, which under the Tax Code are exempted from all kinds of income tax (Section 53(1), NIRC), and which tax exemption is confirmed and settled in the case of Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and GCL Retirement Plan (207 SCRA 487); 5. The Deed of Conveyance to be executed between ABCIC and its stockholders to effect the transfer of the real properties declared as property dividend to said stockholders shall not be subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, considering that the transfer of conveyance of the real properties to the stockholders is not a sale or is without any monetary consideration (Section 185, Regulations No. 26, as amended). However, the acknowledgment of the Deeds of Conveyance before a notary public is subject to documentary stamp tax of P10.00 pursuant to Section 188 of the NIRC as amended are hereby confirmed. The Revenue District Officer concerned may now issue the necessary clearance to effect the transfer of the property dividends consisting of the Asian Plaza 1 Condominium units together with the improvements except units G-7, 207 and 225. (BIR Rulings Nos. 276-91 dated December 26, 1991; 108-93 dated March 18, 1993; and 498-93 dated December 20, 1993). cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)