BIR Ruling [UN-442-95]

December 15, 1995 BIR RULING [UN-442-95] SGV & Co. 6760 Ayala Avenue Makati City Attention: C.P. Noel Gentlemen : This refers to your letter dated October 13, 1995 stating that your client, Ramon Roces, Inc., (RRI), is a holding company; that RRI is the registered owner of eleven (11) parcels of land located in the City of Manila covered by Transfer Certificate of Title Nos. 121759, 158218, 20925, 20926, 20927, 20929, 20930, 20931, 20932, 20933 and 27962 with a total book value of P838,372.61; 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 December 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 May 15, 1995 at the principal office of the company. cdta In connection therewith, you are requesting confirmation of your opinion that: "1. The property dividends to be received by the individual shareholders of RRI 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 book value of the real estate properties declared and distributed as property dividends; "4. The real estate properties which were declared as property dividends shall be recorded at the 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 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 RRI and the recipient stockholders covering the 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. 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 the individual shareholders of RRI shall be subject to a final withholding tax of zero percent (0%). 2. The receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of real properties as property dividends; 3. RRI, 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 dividends; 4. The real estate properties declared as property dividends shall be recorded at the book value in the books of your client corporation as well as in the books of your client's stockholders; and 5. Upon subsequent sale or other disposition of the real estate properties received as property dividend by your client'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 declaration. 6. Finally, the Deed of Conveyance to be executed between RRI and the recipient stockholders 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, then this ruling shall be considered null and void. cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)