BIR Ruling [UN-164-95]

April 17, 1995 BIR RULING [UN-164-95] Cruz Palabyab Llorin Duran & Associates Rm. 604 State Condominium I 188 Salcedo Street, Legazpi Village Makati, Metro Manila Attention: Atty . Eunice V . Cruz Gentlemen : This refers to your letter dated April 5, 1995 requesting for a ruling that the conveyance of the common areas, including the land of Knots Realty Development Corporation, owner-developer to the Sunshine Mansion Condominium Association, Inc., the condominium corporation, is exempt from payment of the creditable withholding tax and documentary stamp tax. cdta It is represented that the Knots Realty Development Corporation, a domestic corporation, is the owner-developer of a piece of land located at No. 1087 Aguilar St., Binondo, Manila and covered by Transfer Certificate of Title No. 175765 upon which the Sunshine Mansion Condominium was constructed; that the Sunshine Mansion Condominium Association, Inc., a domestic corporation, is the condominium corporation that was organized for the purpose of holding title to, managing and maintaining the common areas of the project, as defined in the Master Deed with Declaration of Restrictions; that on April 3, 1995, a Deed of Conveyance was executed between the owner-developer and the condominium corporation whereby the former conveyed title to the said land, the common areas of the building and facilities of the project, in favor of the latter, free from all liens and encumbrances; that said deed was executed without any monetary consideration, in pursuance of the requirements of the Condominium Act which mandates that the Condominium Corporation shall hold title to the common areas (including the land); that majority of the units of the projects have already been sold and titled in the name of the individual unit-owners, after having been paid the documentary stamp tax, transfer and registration fees, and capital gains tax; that each title to a unit sold is annotated in the Certificate of Title to the land; that the herein transfer by conveyance is therefore sought to be exempted from the creditable withholding tax and documentary stamp tax inasmuch as said conveyance is being done simply to comply with the requirements of the Condominium Act, and for the protection of the unit owners and inasmuch as said taxes have already been paid when each individual unit was titled. In reply, please be informed that since the Deed of Conveyance above-mentioned is without consideration and is not in connection with a sale made to the condominium corporation, no income was generated and a fortiori , no creditable withholding tax is payable and collectible. In fact, the sale by the developer of condominium units was made in favor of individual unit owners of the condominium project; and the purpose of the conveyance to the condominium corporation is for the management of the project for the common benefit of the unit owners. (Section 10, R. A. 4726). Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable". In view thereof, this Office is of the opinion as it hereby holds that the aforesaid Deed of Conveyance is not subject to any creditable withholding tax under Section 50 (b) in relation to Section 24 of the Tax Code, as amended. Neither is it subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P10.00 only pursuant to Section 188 of the Tax Code, as amended by Republic Act No. 7660. (BIR Ruling No. UN-083-94 dated February 23, 1994) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)