September 22, 2014

BIR RULING NO. 363-14

Secs. 73 (A), 27 (A), 27 (D) (5) of

the Tax Code of 1997, as amended;
RR 2-98; RR 6-2008; 000-00

Promera Realty Corporation

772 Harvard Road
Wack-Wack, Mandaluyong City

Attention: Eduardo Mangalino/Roberto A. Maquiling

Authorized Personnel

Gentlemen :

This refers to your letter dated October 11, 2012, received by this Office on
even date, requesting for exemption from the tax on the Deed of Assignment
executed by and between Promera Realty Corporation and Ramon I. Diaz.

Documents submitted disclosed that Promera Realty Corporation (TIN

219-375-674-000), is a domestic corporation engaged to acquire by purchase,
lease, donation or otherwise, and to own, use, improve, develop, subdivide, sell,
mortgage, exchange, lease, develop and hold for investment, real estate of all
kinds, whether improve, manage or otherwise dispose of buildings, houses,
apartment, condominiums and other structures of whatever kind, together with
their appurtenances; that it is registered with the Securities and Exchange
Commission (SEC) under SEC Registration No. A200205918; that according to its
SEC General Information Sheet (GIS) for the year 2012, the following have
subscribed shares of stock:
Name No. of Shares Amount Amount
Subscribed Subscribed Paid-Up

Ramon I. Diaz, Jr. 14,809 P14,809,000.00 P14,799,000.00

Mercedes I. Diaz 1 1,000.00 1,000.00
Mercedes Corazon I. Diaz 1 1,000.00 1,000.00
Aurora Corazon I. Diaz 1 1,000.00 1,000.00
Priscilla Corazon I. Diaz 1 1,000.00 1,000.00

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Total 18,620 P18,620,000.00 P14,800,000.00
====== ============ ============

that on January 30, 2012, a majority of the Board of Directors and by the vote of
the stockholders owning or representing all of the outstanding capital stock have
approved a resolution amending Article IV of the Articles of Incorporation of the
Promera Realty Corporation by shortening the term of its existence thereby
dissolving the said corporation on February 29, 2012 and was approved by the
SEC on July 22, 2013; that on October 8, 2012, a Deed of Assignment was
executed by and between Promera Realty Corporation and Ramon I. Diaz whereby
the former transferred to the latter, by way of liquidating dividends, a parcel of
land covered by Condominium Certificate of Title (CCT) No. 93672 issued by the
Registry of Deeds for City of Makati; that CCT No. 93672 was formerly CCC No.
74767, transferred to Promera Realty Corporation under tax free exchange by
Mercedes I. Diaz in exchange of 14,800 shares with a substituted basis of
P19,372,045.45; that on January, 2012, Mercedes I. Diaz sold 14,799 shares to
Ramon I. Diaz, Jr., for P500,000.00 with market value of P14,799,000.00 as
evidence by Certificate Authorizing Registration (CAR) issued by Revenue
District Office (RDO) No. 65-Naga City; that Ramon I. Diaz became the majority
stockholder of Promera Realty Corporation owning Ninety Nine and 99/100
(99.99%) of the total equity of the corporation; and that Bureau of Internal
Revenue (BIR) Revenue District Office (RDO) No. 041-Mandaluyong issued a
Certificate of No Outstanding Tax Liability to Promera Realty Corporation dated
June 19, 2013. ISHCcT

In reply, please be informed as follows:

Corporate Income Tax

The transfer by the liquidating corporation of its remaining assets to its

stockholders in exchange for the surrender and cancellation of the shares is not a
sale, hence the same is exempt from corporate income taxes, creditable
withholding and documentary stamp taxes under Revenue Regulations No. 1-90,
as amended by RR 6-2001 and further amended by RR 17-2003. Thus, a
liquidating corporation does not realize gain or loss in partial or complete
liquidation. (W.P. Fox & Sons, Inc., Petitioner vs. Commissioner of Internal
Revenue, Respondent, 15 BTA 115; Jordan Petroleum Company, 13AFTR 2d 1692
(227 F. Supp. 174); JTS Brown & Son Company vs. Commissioner of Internal
Revenue, 10TC 840) Conversely, neither is a liquidating corporation subject to tax
on its receipt of the shares surrendered by its shareholders pursuant to a complete
or partial redemption.

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 However, the second paragraph of Section 73 (A) of the Tax Code of 1997
states:

"Where a corporation distributes all of its assets in complete

liquidation or dissolution, the gain realized or loss sustained by the
stockholder, whether individual or corporate, is a taxable income or a
deductible loss, as the case may be."

Moreover, Section 8 of Revenue Regulations (RR) No. 6-2008, states:

SEC. 8. Taxation of Surrender of Shares by the Investor upon

Dissolution of the Corporation and Liquidation of Assets and Liabilities of
Said Corporation. Upon surrender by the investor of the shares in
exchange for cash and property distributed by the issuing corporation upon
its dissolution and liquidation of all assets and liabilities, the investor shall
recognize either capital gain or capital loss upon such surrender of shares
computed by comparing the cash and fair market value of property received
against the cost of the investment in shares. The difference between the sum
of the cash and the fair market value of property received and the cost of the
investment in shares shall represent the capital gain or capital loss from the
investment, whichever is applicable. If the investor is an individual, the rule
on holding period shall apply and the percentage of taxable capital gain or
deductible capital loss shall depend on the number of months or years the
shares are held by the investor. Section 39 of the Tax Code, as amended,
shall herein apply in all possible situations. TCHcAE

The capital gain or loss derived therefrom shall be subject to the

regular income tax rates imposed under the Tax Code, as amended, on
individual taxpayers or to the corporate income tax rate, in case of
corporations.

Thus, in the event that the liquidating dividend in the form of properties is
more than the amount/value of investment, the gain realized by a stockholder from
the distribution of the assets in liquidation is subject to the normal tax in like
manner as if he had sold his stock to third persons. (Wise & Co. vs. Bibiano L.
Meer, 078 Phil. 655, dated June 30, 1947) Nonetheless, this Office has held that
the liquidating gain, which is the difference between the adjusted cost of the shares
and the fair market value of the properties given as liquidating dividend is subject
to the ordinary income tax rates and not to the capital gains tax on the sale of
shares.

Accordingly, the gain which is the difference between the adjusted cost of
the shares and the fair market value of the property given as liquidating dividend
to Ramon I. Diaz shall be subject to the ordinary income tax rates and not to the
capital gains tax on the sale of shares.
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Documentary Stamp Tax (DST)

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."

Pursuant to the abovequoted Section 189, the distribution of the assets of

the corporation to its stockholders in liquidation of the business without
consideration is viewed as a return of capital to the shareholders. Considering this,
the provision of Section 196 of the Tax Code of 1997, as amended, shall not apply.
Thus, it has been held that a corporation that distributes its assets to its
shareholders as liquidating dividends is not deemed to be selling such assets to the
latter. Accordingly, the transfer by Promera Realty Corporation of CCT No. 93672
to Ramon I. Diaz shall not be subject to DST imposed under said Section 196 of
the Tax Code, as amended. The notarial certification on the deed of assignment is,
however, subject to the DST of P15.00 imposed under Section 188 of the same
Tax Code. DEHaAS

Valued-Added Tax

Pursuant to Section 106 (B) (4) of the Tax Code of 1997, as amended,
which provides that:

Section 106. Value-Added Tax on Sale of Goods or Properties.

xxx xxx xxx

(B) Transactions Deemed Sale. The following transactions shall

be deemed sale:

xxx xxx xxx

(4) Retirement from or cessation of business, with respect

to inventories of taxable goods existing as of such retirement and
cessation.

Since the conveyance by Promera Realty Corporation of CCT No. 93672 to

Ramon I. Diaz as liquidating dividends falls under the purview of the
above-quoted provision, the same shall be subject to the 12% Value-Added Tax.

Finally, the stockholders who sell the real property received by them as
liquidating dividends immediately after title thereto is transferred to their name are
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subject to the final capital gains tax imposed under Section 24 (D) (1) of the Tax
Code, as amended, in the case of individual distributees and Section 27 (D) (5)
thereof, in the case of corporate distributees.

This ruling is being issued on the basis of the foregoing facts as

represented. However, if upon investigation it will be disclosed that the facts are
different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

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