BIR Ruling [UN-103-95]

March 13, 1995 BIR RULING [UN-103-95] Carlos J Valdes & Co CJVC Building 108 Aguirre Street Legaspi Village Makati, Metro Manila Attention: Mr . Romeo C . Alba Managing Director - Tax Gentlemen : This refers to your letter dated February 28, 1995 requesting for a ruling that the property dividend consisting of a real property declared by Ciro Locsin Agricultural Corporation is not subject to any income or capital gain taxes. cdtech It is represented that Ciro Locsin Agricultural Corporation is a domestic corporation with an authorized capital stock of Two Million Six Hundred Thousand (P2,600,000.00) consisting of Two Hundred Sixty Thousand (260,000) shares with a par value of Ten Pesos (P10.00) per share of which One Hundred Sixty One Thousand Three Hundred Thirty Three (161,333) have been subscribed and fully paid for; that as of August 31, 1994, Ciro Locsin Agricultural Corporation had a total stockholder's equity of Two Million Seven Hundred Seventy Two Thousand Two Hundred Seventy Three Pesos (P2,772,273.00) which includes an unrestricted retained earnings of One Million One Hundred Fifty Eight Thousand Nine Hundred Forty Three Pesos (P1,158,943.00); that in 1995, the Board of Directors of Ciro Locsin Agricultural Corporation declared property dividend to stockholders of record as of August 31, 1994, particularly described as follows: Book Value Area Tax Acquisition Location TCT No. (Sq. M.) Dec. # Description Cost Urdaneta Ave., 446942 1,084 00144 Residential P470,000.00 Urdaneta Vill. Makati, M.M. that after the declaration of the above real property dividend, it will continue to do business and with no plan of liquidation. 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, since Ciro Locsin Agricultural Corporation declared in 1995 property dividend to stockholders of record as of August 31, 1994, 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, as amended by Revenue Regulations 12-94 implementing Section 50(b) of the Tax Code, as amended. 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 transfer of the said property divided to the stockholders is not in connection with a sale and the same is without monetary consideration, this Office is of the opinion that the Deed to be executed to effect the transfer of such property dividend to the stockholders 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 Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. (BIR Rulings No. 498-93 dated December 20, 1993) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)