BIR Ruling [UN-385-95]

October 31, 1995 BIR RULING [UN-385-95] Castillo Laman Tan Pantaleon & San Jose The Valero Tower, 122 Valero Street Salcedo Village, Makati City Attention: Attys . Ma . Victoria D . Sarmiento and Delfin P . Angcao Gentlemen : This refers to your letter dated July 31, 1995 stating that Cala Realty Company, Inc. (Cala) is a domestic corporation, the entire capital stock of which is beneficially owned by Boehringer Ingelheim (Philippines), Inc. Employees' Retirement Benefit Plan, a duly qualified BIR registered tax-exempt employee benefit plan; and that upon approval by the Securities and Exchange Commission of the decision of the Board of Directors and stockholders of Cala shortening its corporate life, resulting in its dissolution, its remaining assets, among which is a land located in Bo. Canlubang, Calamba, Laguna, within the Canlubang Industrial Estate, containing an area of 73,624 square meters, more or less technically identified as Lot 1689-X-3-B-1 covered by TCT No. T-114382 issued by the Registry of Deeds of Laguna, will be distributed to Boehringer Ingelheim (Philippines), Inc. Employees Retirement Benefit Plan as liquidating dividends. cd In connection therewith, you are requesting confirmation of your opinion that (1) The transfer by Cala of its remaining assets such as but not limited to the abovedescribed parcel of land to its sole stockholder, Boehringer Ingelheim (Philippines), Inc. is not subject to income, capital gains, creditable withholding and/or stamp taxes; (2) The subsequent sale of the land by the Boehringer Ingelheim (Philippines), Inc. Employees Retirement Benefit Plan will be subject to documentary stamp taxes under Section 196 of the Tax Code, as amended based on the zonal value of the land or the selling price, whichever is higher. The sale will however, be exempt from capital gains and/or creditable withholding taxes under (Section 53 (b) of the Tax Code, as amended; In reply thereto, please be informed that Section 189 of Revenue Regulations No. 26 otherwise known as the Documentary Stamp Tax Regulations provides, viz.: "Section 189. Conveyances by corporation to owner of all the capital . A conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax." It is clear from the abovequoted section of Revenue Regulations No. 26 that a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to an owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended by R.A. No. 7660. Accordingly, your opinion that the distribution in liquidation of the remaining assets of Cala consisting but not limited to the aforementioned parcel of land to its sole stockholder, Boehringer Ingelheim (Philippines), Inc. Employees Retirement Benefit Plan, a duly qualified BIR registered tax-exempt employee benefit plan is not subject to the documentary stamp tax is hereby confirmed. Moreover, Revenue Regulations Nos. 12-94 does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's shares of stock for cancellation by the corporation. This conveyance is without any consideration. The transfer by the liquidating corporation of its remaining assets to its stockholders is not considered as a sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation [W.P. Fox & Sons, Inc., Petitioner v. Commissioner of Internal Revenue, Respondent, 15 BTA 115; Jordan Petroleum Company, 13 AFTR 2d 1692 (227 F. Supp. 174); J.T.S. Brown & Son Company v. Commissioner of Internal Revenue, 10 TC 840] Considering that the transfer in liquidation of the aforementioned parcel of land by Cala to Boehringer Ingelheim (Philippines), Inc. Employees' Retirement Plan with the surrender and cancellation of Cala's shares of stock is not a sale, your opinion, therefore, that the said transaction is not likewise subject to the 7.5% creditable withholding tax under Revenue Regulations No. 12-94 is hereby confirmed. Moreover, Cala is not subject to income tax arising from the said transfer in liquidation. Furthermore, the subsequent sale of the aforementioned parcel of land by Boehringer Ingelheim (Philippines), Inc. Employees' Retirement Plan shall not be subject to income tax and/or creditable withholding tax pursuant to Section 53 (b) of the Tax Code, as amended. However, the sale be subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended based on the gross selling price, fair market value of zonal value of the real property whichever is higher. (BIR Ruling No. 059-90 dated April 17, 1990). Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)