BIR Ruling [UN-457-95]

1995 BIR RULING [UN-457-95] Everlasting Investments, Inc. 229 Cuneta Avenue Pasay City Attention: Ms . Teresita Oledan Corporate Secretary Gentlemen : This refers to your letter dated December 8, 1995 stating that the corporate existence of Everlasting Investments, Inc. (Corporation) had expired on April 26, 1981, leaving assets consisting of real estate properties undistributed and unliquidated among its stockholders; that in a meeting held on November 3, 1995 all stockholders of said corporation had adopted and approved a resolution whereby they agreed to distribute and liquidate said real estate properties among themselves, representing the return of their respective investments in the said corporation; and that your individual stockholders will receive their liquidating dividends in excess of their investments. Based on the foregoing representations, you are now requesting for a ruling as to the tax consequence of the above-mentioned transaction. cdtech In reply thereto, please be informed as follows: (1) The liquidating corporation is not subject to any tax for receiving from its stockholders and then cancelling the shares surrendered by the stockholders; (2) The corporation in transferring its real estate properties to its stockholders representing the return of their respective investments in the said corporation, is not subject to any income tax and is, therefore, not subject to the creditable withholding tax of 7.5% under Revenue Regulations No. 1-90, as amended by Revenue Regulations No. 12-94. 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 cited in BIR Ruling No. 196-010-90-059-90 dated April 17, 1990). (3) The Deed of Transfer covering the real estate properties to be transferred to the stockholders is subject to documentary stamp tax. (Section 173, Tax Code, as amended). In all cases involving sale, exchange, or any disposition of real property as in this case, where real property is being distributed by the corporation to its stockholders as liquidating dividends, the tax base for documentary stamp tax purposes is the fair market value or zonal value of the real property. (RMO No. 41-91; BIR Ruling No. 66-000-00-270-91 dated December 23, 1991); (4) The gain realized or loss sustained upon the surrender by the stockholders of their respective shares in exchange for the transfer in their name of the real estate properties shall be computed based on the difference between the fair market or zonal values of said real properties at the time of transfer and the acquisition or adjusted costs to the stockholders of their shares surrendered. Moreover, any income realized therefrom by the individual stockholders are subject to income tax at the rates prescribed under Section 21(f) of the Tax Code, as amended. (BIR Ruling Nos. 119-84 dated July 12, 1984) Moreover, the Revenue District Officer under whose administrative the taxpayer falls jurisdiction is authorized to issue the necessary certification authorizing transfer of title to real property covering the said real estate properties to be presented to the Register of Deeds. (BIR Ruling No. 171-92 dated May 28, 1992) aisadc Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)