BIR Ruling [UN-228-94]

July 27, 1994 BIR RULING [UN-228-94] Atty. Mariano C. Ereso, Jr. 2100 A. Mabini Street Malate, Manila S i r : This refers to your letter dated July 12, 1994 stating that your client, Conventry Realty Company, Inc. (Corporation), through its Board of Directors at its special meeting on April 6, 1994, declared out of the unrestricted retained earnings as of December 31, 1993 as property dividends, two (2) parcels of land which the corporation decided not to develop due to poor economic conditions which are adversely affecting the real estate property business; that the two (2) parcels of land declared as property dividends are situated in Barrio Diezmo, Cabuyao, Laguna, and covered by Transfer Certificate of Title Nos. 120445 and T-120446; that the corporation as of December 31, 1993 has unrestricted retained earnings in the total amount of 15,982,782.00; that the two (2) parcels of land were declared as property dividends at their total net book value of 13,869,070.00; that after the declaration, the retained earnings will have a balance of P2,113,712.00 and the remaining assets of the corporation will have a book value of P45,398,639.00; that the declaration of the property dividends is ordinary and will not adversely affect the viability and operations of the corporation as a going concern. aisadc In connection therewith, you are requesting confirmation of your opinion on the following: "a) The declared property dividends consisting of the abovementioned two (2) parcels of land to be received by the stockholders of the Corporation shall be subject to a final withholding tax of 0% and the stockholders receiving the same shall not be subject to any income or capital gains tax as a result of their receipt of the two (2) parcels of land as property dividends, Accordingly, a certificate authorizing the transfer of the titles to the properties from the corporation to the stockholders entitled to receive the same as property dividends, shall be issued by the Revenue District Officer of the Revenue District where the properties are located without requiring the payment of the 5% final/creditable withholding tax imposed under Revenue Regulations No. 1-90 as amended, (BIR Ruling No. 108 dated March 16, 1993); "b) The property dividends declared by the Corporation can be taken up in the books of the Corporations at the declared value of P13,896,070.00 and the stockholders of the Corporation receiving the property dividends can record the same at the same value (Ibid); "c) The corporation shall not be liable to any income or capital gains tax on the difference between the fair market value and book value of the two (2) parcels of land declared and distributed as property dividends. (Ibid); "d) Upon subsequent sale or other disposition of the two (2) parcels of land received as property dividends by the stockholders of the Corporation, the basis of taxation of the subsequent sale or other disposition shall also be its book value at the time of the dividend distribution. (Ibid); and "e) The Deed of Assignment conveying the abovementioned two (2) parcels of land declared as property dividends, not being a sale and without monetary consideration, shall be subject to the documentary stamp tax of P3.00 on certificates pursuant to Section 188 of the Tax Code, as amended, instead of the documentary stamp tax prescribed in Section 196 of the same Code. (BIR Ruling No. 498-93, December 20, 1993). In reply thereto, please be informed that your following opinions, to wit: (1) That the property dividends consisting of the aforesaid two (2) parcels of land to be received by the stockholders of the corporation shall be subject to a final withholding tax of 0% and the stockholders receiving the same shall not be subject to any income or capital gains tax as a result of their receipt of the two (2) parcels of land as property dividends. Moreover, a certificate authorizing the transfer of the titles to the properties from the corporation to the stockholders shall be issued by the Revenue District Officer where the properties are located without the payment of the 7.5% creditable withholding tax imposed under Revenue Regulations No. 12-94 implementing Section 50 (b) of the Tax Code , as amended; (2) That the property dividends can be taken up in the books of the Corporations at their total net book value of P13,869.070.00 and the stockholders of the corporation receiving the property dividends can be record the same at the same value; (3) That the corporation shall not be liable to any income or capital gains tax on the difference between the fair market value and the book value of the two (2) parcels of land declared and distributed as property dividend; (4) That upon the subsequent sale or other disposition of the two (2) parcels of land received as property dividends by the stockholders of the corporation, the basis of taxation of the subsequent sale or other disposition shall be its book value at the time of the dividend distribution; and (5) That the Deed of Assignment conveying the two (2) parcels of land declared as property dividends; not being a sale and without monetary consideration shall be subject to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended, are hereby confirmed. (BIR Rulings Nos. 108-93 dated March 16, 1993; 498-93 dated December 20, 1993). cdtech are hereby confirmed. Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)