BIR Ruling [UN-032-96]

January 24, 1996 BIR RULING [UN-032-96] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Building 8747 Paseo de Roxas Makati City Attention: Atty . George J . Lavadia Principal Gentlemen : This refers to your letter dated December 8, 1995 stating that your client, AGIC Realty Development Corporation (AGIC) is a domestic corporation with an authorized capital stock of Two Million Pesos (P2,000,000.00), consisting of Two Hundred Thousand (200,000) shares of stock with a par value of Ten Pesos (P10.00) per share, of which Ninety Three Thousand Eight Hundred Forty Eight (93,848) shares of stock are issued and outstanding as of December 31, 1994; that as of the same date, AGIC had a total stockholders' equity in the amount of One Million Eight Hundred Twenty Seven Thousand Seven Hundred Ninety Three and 47/100 (P1,827,793.47) which includes unrestricted retained earnings in the amount of Eight Hundred Eighty Nine Thousand Three Hundred Thirteen and 47/100 (P889,313.47); that on November 18, 1995, AGIC declared property dividend in the amount of Three Hundred Twenty Three Thousand Eight Hundred Forty Three and 25/100 (P323,843.25) out of its unrestricted retained earnings as of December 31, 1994 in favor of the stockholders of record as of December 31, 1994 consisting of real estate property in the amount of Three Hundred Twenty Three Thousand Eight Hundred Forty Three and 25/100 (P323,843.25) which is more particularly described as follows: "A parcel of land (Lot No. 1, Blk. No. 32 of the cons. subd. plan, Pcs-817, being a portion of the consolidated Lot No. 4-Cpl described as plan Psd-6415, Lot No. 5-A-2-A-2 described on plan Psd-145999, Lot No. 10 described on the orig. plan, Psd 73270 and Blk. No. 18 described on plan Pcs-754, GLRO Rec. No. 917), situated in the Dist. of Cubao, Quezon City. Bounded on the NE, by Lot No. 31, Blk. No. 32; on the SE, by Road Lot No. 50; on the SW by road Lot No. 2; and on the NW, by Lot No. 2, Blk. 32 . . . containing an area of One Thousand Two Hundred Eighteen (1,218) square meters more or less." that the said real estate property is a capital asset of AGIC which is not used and not intended to be used by AGIC in its ordinary course of business; that the above property declared as dividend was recorded in the books of AGIC at its book value; that the total book value of the property dividend does not exceed Twenty Five Percent (25%) of AGIC's assets for the year ended December 31, 1994; and that AGIC continues to do business and its stockholders have no intention of liquidating the corporation after the declaration of property dividends. In connection therewith, you are requesting confirmation of your opinion that 1. The property dividend shall be recorded at book value in the books of both the issuing corporation and the recipient stockholders; 2. The declared property dividend which shall be received by the stockholders of AGIC 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 this property as property dividend; and 3. The Deed of Conveyance executed by AGIC in favor of the recipient stockholders covering the real estate property declared as property dividend, not being a sale and without monetary, consideration shall not be subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended. In reply thereto, please be informed as follows: 1. That the property dividend shall be recorded at book value in the books of both the issuing corporation and the recipient stockholders (BIR Ruling No. 156-94 dated November 16, 1994). 2. That the declared property dividend which shall be received by the stockholders of AGIC 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 this property as property dividend (BIR Ruling No. 156-94 dated November 16, 1994). However, property dividends which shall be distributed in 1996 by the company to its shareholders and declared out of retained earnings as of December 31, 1995 shall be subject to VAT beginning January 1, 1996 based on the market value or zonal valuation, whichever is higher, at the time of receipt; 3. That the Deed of Conveyance executed between AGIC in favor of the recipient stockholders covering the real estate property declared as property dividend, not being a sale and without monetary consideration shall not be subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended but only to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended (BIR Ruling Nos. 108-93 dated March 16, 1993; 498-93 dated December 20, 1993). cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant Director II, Legal Service