BIR Ruling [UN-047-95]

January 27, 1995 BIR RULING [UN-047-95] Atty. Manuel A. Abad 41 Prelaya St., Tugatog Malabon, Metro Manila S i r : This refers to your undated letter stating that on June 10, 1994, your client, Basic Packaging Corporation (BPC), a domestic corporation, passed a resolution authorizing the assignment and transfer of its interest on certain idle parcels of land of the corporation, not utilized in operation, with a book value of P415,540.00, to all stockholders of record as of December 31, 1993, by way of property dividends; that thereafter, the corresponding Deed of Assignment was executed by the corporation thru its President Mr. Co. Su Lim to carry out and implement the resolution; and that ironically, despite payment of the documentary stamp tax in the amount of P6,240.00, the Revenue District Officer of Valenzuela has refused to issue the corresponding Certificate Authorizing Registration contrary to the ruling enunciated by this Office in the case of SEA Commercial Company, Inc. (SEACOM) promulgated on March 23, 1993 and others, declaring that the issuance of the same is ministerial. cdtech Based on the foregoing representations and documents submitted, you are now requesting for a ruling that property dividends declared by a domestic corporation are: 1. Subject to zero percent (0%) final withholding tax; 2. That the receiving stockholders are not subject to any income or capital gains tax; 3. That the declaring corporation is not subject to any income or capital gains tax on the difference of the fair market value and the book value of the real properties concerned; and 4. That the documentary stamp tax shall be based on the book value of the real properties declared as property dividends. In reply, please be informed as follows: 1. Under Section 21(c)(2) of the Tax Code, as amended by Executive Order No. 37 (effective August 1, 1986)dividends received from a domestic corporation and the share of an individual partner in a partnership subject to tax under Section (24)a of the Tax Code shall be subject to income tax at the rate of 15% in 1986; 10% effective January 1, 1987; 5% effective January 1, 1988; and 0% effective January 1, 1989. Accordingly, and since your client declared and distributed property dividends in 1994, it is subject to zero percent (0%) final withholding tax on such property dividend declaration and distribution. 2. The stockholders of your client are not subject to any income or capital gains tax arising from their receipt of real properties as property dividend; 3. Your client corporation is not likewise subject to any income tax 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 dividend (BIR Ruling No. 277-93 dated June 28, 1993); and 4. 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. Accordingly, and considering that the 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 monetary consideration, the deed conveying 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 (P10.00) on Certificates pursuant to Section 188 of the same Code. (BIR Ruling No. 498-93 dated December 20, 1993) Consequently, the Revenue District Officer of Valenzuela, Metro Manila is hereby directed to issue the corresponding Certificate Authorizing Registration on the real properties declared as property dividend by BPC in the name of the recipient stockholders. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)