BIR Ruling [UN-124-95]

March 28, 1995 BIR RULING [UN-124-95] St. Rico Investment Corporation 269 Dasmarias St., Binondo Manila Attention: Mr . Victor Chua Tiong Hu President Gentlemen : This refers to your letter dated March 15, 1995 requesting for a ruling on the tax consequence of the property dividend declaration of St. Rico Investment Corporation consisting of two (2) parcels of land. cdta It is represented that St. Rico Investment Corporation is a domestic corporation duly registered with the Securities and Exchange Commission with an authorized capital stock of Two Million Pesos (P2,000,000.00) divided into Twenty Thousand (20,000) shares with a par value of One Hundred Pesos (P100.00) per share, of which Six Thousand Five Hundred (6,500) shares were subscribed, paid and issued; that during the taxable year 1994, St. Rico Investment Corporation has an accumulated retained earnings amounting to One Hundred Fifty Seven Thousand Two Hundred Seventy One Pesos and 07/100 (P157,271.07) which are free and unrestricted; that the Board of Directors during their annual stockholder's meeting on March 11, 1995, adopted a resolution declaring property dividend for distribution to stockholders of record as of March 14, 1995 particularly described as follows: Book Value Area Tax Dec. Acquisition Location TCT No. (sq. m.) No. Description Cost Intramuros, 80540 475.40 B-070-0140 Commercial P50,000.00 Manila Intramuros 79983 621.30 B-070-0003 Commercial P100,000.00 Manila that after the declaration of the above real property dividend, it will continue to do business and has no plan of liquidation; and that the same distribution of dividend will not materially affect the conduct of business. 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 St. Rico Investment Corporation declared in 1995 property dividend to stockholders of record as of March 14 1995, 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 the sale, to trustees or other persons without consideration are not taxable. In view thereof, and considering that the transfer of the said property dividend 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 of (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) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant (Legal)