BIR Ruling [UN-452-95]

December 27, 1995 BIR RULING [UN-452-95] Flores and Associates Unit 104, Ground Floor First Midland Condominium Bldg. Gamboa St., Legaspi Village Makati City Attention: Atty . Romeo H . Duran Gentlemen : This refers to your letter dated December 7, 1995 stating that Interpublic Marketing Corporation (corporation) through its Board of Directors at its meeting on September 9, 1995, declared out of its unrestricted retained earnings as of December 31, 1994 as property dividends three (3) parcels of land, which the corporation does not need for its operations; that the three (3) parcels of land declared as property dividends are situated in Batangas City and covered by TCT Nos. 62501, 62502; and RT-2739 (6345); that the corporation as of December 31, 1994 has unrestricted retained earnings in the total amount of P858,204.85; that the sum of P439,699.98 was appropriated for dividend declaration payable via the assignment and conveyance of the aforesaid three (3) parcels of land; that after the declaration of the property dividend, the corporation will still have a balance in the retained earnings account in the sum of P418,504.87; that the remaining assets of the corporation, after the dividend declaration will have a book value which is still a very substantial amount; and 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. In connection therewith, you are requesting confirmation of your following opinions: a) The declared property dividends consisting of the abovementioned three (3) 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 three (3) parcels of land as property dividends. Accordingly, a certificate authorizing the transfer of the title to the property 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, March 16, 1993); b) The property dividends declared by the Corporation can be taken up in the books of the Corporation at the declared value of P439,699.98 and the stockholders of the Corporation receiving the property dividends can record the same at the same value. (Ibid); c) The Corporation shall be liable to any income or capital gains tax on the difference between the fair market value and the declared value of the aforesaid three (3) parcels of land declared and distributed as property dividends. (Ibid); d) Upon subsequent sale or other disposition of the aforesaid three (3) 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 three (3) 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 aforementioned opinions are hereby confirmed, viz: 1) That the declared property dividends consisting of the abovementioned three (3) 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 three (3) parcels of land as property dividends. A Certificate Authorizing Registration (CAR) may be issued by the Revenue District Officer of the Revenue District where the properties are located so that title to the aforementioned properties may be transferred from the corporation to the recipient-stockholder without the payment of the 7.5% creditable withholding tax imposed under Revenue Regulations No. 1-90 as amended. (BIR Ruling No. 028-89 dated February 22, 1989) 2) That the property dividends declared by the corporation can be taken up in the books of the corporation at the declared value of P439,699.98 if this value is the book value of the properties and the recipient stockholders can record the same also at the said book 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 aforementioned three (3) parcels of land declared and distributed as property dividends; 4) That upon subsequent sale or other disposition of the aforementioned three (3) 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. 5) That the Deed of Assignment conveying the aforementioned three (3) parcels of land declared as property dividends, not being a sale and without monetary consideration shall be subject to a documentary stamp tax of P10.00 on certificates pursuant to Section 188 of the Tax Code, as amended. (BIR Ruling No. 108-93 dated March 16, 1993 and BIR Ruling No. 498-93 dated December 20, 1993) This ruling is being issued based on the facts as represented. If upon investigation it is found out that the facts are different, then this ruling shall be considered null and void. cdlex Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)