BIR Ruling [UN-038-94]

February 8, 1994 BIR RULING [UN-038-94] Joaquin Cunanan & Co. 8th Floor BA-Lepanto Bldg. Paseo de Roxas Makati, Metro Manila Attention: Mr . Jose S . Tayag Partner Gentlemen : This refers to your letter dated September 20, 1993 requesting confirmation of your opinion to the effect that the sale of a parcel of land owned by your client, Tagnanan Estates, Inc. (TEI), to the Tagnanan CARP Beneficiaries Cooperative, Inc. (TCBC) under the Comprehensive Agrarian Reform Law (CARL), is exempt from the payment of income tax, documentary stamp tax and other taxes and fees; and that the distribution by TEI of cash dividends to its stockholders out of the proceeds of the sale is likewise exempt from tax. It is represented that your client owns a 1,005-hectare parcel of land located in Tagnanan, Davao del Norte; that under a direct payment scheme, pursuant to the provisions of the Comprehensive Agrarian Reform Law, TEI will transfer the ownership of the land to TCBC; that a third party the Nova-Vista Management and Development Corporation (NVMDC), will subsequently lease the said property from TCBC; that NVMDC will pay TEI, on behalf of TCBC, the purchase price of the land in equal annual installments; that such payments will in turn be advance payments by NVMDC for the lease of the land; and that each installment payment which will be received by TEI will consequently be declared as cash dividends to its stockholders. In reply thereto, please be informed that under Section 66 of R.A. No. 6657, the Comprehensive Agrarian Reform Law, reading: "SEC. 66. Exemptions from taxes and fees of Land Transfer . Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fee, and all other taxes and fees for the conveyance or transfer thereof; Provided that all arrearages in real property taxes, without penalty or interest shall be deductible from the compensation to which the owner may be entitled." conveyance or transfer of ownership of realty shall be exempt from the capital gains tax, income tax, documentary stamp tax and other taxes and fees normally imposed on such transfer . It is the policy of the State to promote genuine agrarian reform through equitable distribution of landholdings. To this end, the State recognizes the need to provide incentives to landowners to invest the proceeds of the agrarian reform program to promote industrialization, employment and privatization of public sector enterprises. One such incentive is the exemption from tax of land acquisitions under R.A. 6657 or the Comprehensive Agrarian Reform Law. In view thereof, this Office hereby confirms your opinion and so holds, that the sale of a parcel of land by the Tagnanan Estates, Inc. to the Tagnanan CARP Beneficiaries Cooperative, Inc. under the Comprehensive Agrarian Reform Law is exempt from the payment of income tax, documentary stamp tax and other taxes and fees pursuant to Section 66 of the aforesaid R.A. 6657; (BIR Ruling No. 104-90 dated May 29, 1990); and that the distribution of cash dividends by Tagnanan Estates, Inc., a domestic corporation, to its stockholders, is likewise exempt from income tax pursuant to Section 21(c)(2) of the Tax Code, as amended. aisadc Very truly yours, JAIME M. MAZA Assistant Commissioner Legal Service