BIR Ruling [UN-401-95]

November 15, 1995 BIR RULING [UN-401-95] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to you letter dated September 13, 1995 stating that you client, Nadeco Corporation (NADECO), is a realty company which is 100% owned by Pepsi-Cola Products Philippines, Inc. (PCPPI); that NADECO is the registered owner of four (4) parcels of land located in Pasig City, Muntinlupa, Metro Manila, San Fernando, Pampanga and Tarlac, Tarlac covered by Transfer Certificates of Title Nos. 43809, 132042, 210805-R and 183275 all with a total book value of P3,773,000; that to achieve efficiency in its operations and considering that the company has sufficient unrestricted retained earnings sufficient to cover the book value of the properties, the Board of Directors decided to declare the properties as dividends to stockholders of record as of July 31, 1995; that the declaration of property dividends was affirmed by the stockholders representing at least 2/3 of the outstanding capital stock at a special meeting held on August 14, 1995 at the principal office of the company. In connection therewith, you are requesting confirmation of your following opinions that: "1. That the property dividends to be received by PCPPI are subject to a final withholding tax of zero percent (0%); "2. The receiving stockholders are not subject to any income or capital gains tax arising from their receipt of real estate properties as property dividend; "3. Our client corporation is not subject to any income or capital gains tax on the difference between the fair market value and the book value of the real estate properties declared and distributed as property dividend; "4. The real estate properties which were declared as property dividends shall be recorded at book value in the books of our client corporation as well as in the books of our client's stockholders; "5. Upon subsequent sale or other disposition of the real estate properties received as property dividend by our client corporation's stockholders, the basis of the taxation of the subsequent sale or other disposition shall be the book value at the time of the dividend distribution; and "6. The Deed of Conveyance to be executed between NADECO and PCPPI, as the recipient stockholder covering the real estate properties declared as property dividends, is not subject to the documentary stamp under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P10.00 on certificates under Section 188 of the Tax Code, as amended. In reply thereto, please be informed that your aforestated opinions are hereby confirmed, viz: 1. The property dividends consisting of real properties to be received by PCCPI shall be subject to a final withholding tax of zero percent (0%). 2. PCPPI shall not be subject to any income or capital gains tax arising from its receipt of real property as property dividends; 3. NADECO, the issuing corporation, shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real properties declared and distributed as property dividend; 4. The real estate properties declared as property dividends shall be recorded at book value in the books of your client corporation as well as in the books of PCPPI; and 5. Upon subsequent sale or other disposition of the real estate properties received as property dividend by PCPPI, the basis of the taxation of the subsequent sale or other disposition shall be the book value at the time of the dividend declaration. 6. Finally, the Deed of Conveyance to be executed between NADECO and PCPPI, as the recipient stockholder covering the aforementioned real estate properties declared as property dividends, is not subject to the documentary stamp tax under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P10.00 on certificates under Section 188 of the Tax Code, as amended. This shall serve as authority for the Revenue District Officer concerned to issue the corresponding Certificate Authorizing Registration of the real properties declared as property dividend in the name of the recipient stockholder. (BIR Ruling Nos. 276-91 dated December 26, 1991 and 498-93 dated December 20, 1993) This ruling is being issued based on the facts represented and on the documents submitted. If upon investigation it is found out that the facts are different, this ruling shall be considered null and void. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)