AN ORDER DISPENSING THE NECESSITY OF SECURING A RULING FROM THE BUREAU OF INTERNAL REVENUE AS A REQUISITE FOR THE ISSUANCE OF CAR/TCL ON THE CONVEYANCE OF LAND AND COMMON AREAS …

Based on existing policies, before any Certificate Authorizing
Registration (CAR) / Tax Clearance (TCL) can be issued by the concerned
RDO allowing the transfer of the land and the common areas from the real
estate developer to the Condominium Corporation established pursuant to
the provisions of Republic Act No. 4726, otherwise known as the
Condominium Act, there is first the need to secure a prior BIR Ruling
confirming the tax exemption of the transfer.

This additional requirement of securing a prior ruling,
notwithstanding the fact that Bureau has already given its opinion on
the tax consequences of this transfer, has only protracted the process
by which CARs/TCLs are issued, thereby hampering the ability of the
Bureau to provide an expedient service to the public.

II. OBJECTIVE. – This Order is thus issued to :

1. Improve taxpayer service by further streamlining and enhancing the
process by shortening the period within which to secure the CAR/TCL
with respect to such type of transfer of real property; and

2. Provide the guidelines and procedures to be observed in the issuance of CAR/TCL with respect thereto.

III. POLICIES AND GUIDELINES. –

1. The Bureau hereby dispenses with the requirement of securing a
prior ruling before any Certificate Authorizing Registration (CAR) / Tax
Clearance (TCL) can be issued by the concerned RDO allowing the
transfer of the land and the common areas from the real estate developer
to the Condominium Corporation established pursuant to the provisions
of Republic Act No. 4726, otherwise known as the Condominium Act;

2. The taxpayer, however, may at his option still secure a prior
ruling from the Bureau to confirm the tax-exempt status of such
transfer;

3. The concerned Revenue District Officer (RDO), upon receipt of all
the documents as enumerated in item (IV) hereunder, can proceed with the
issuance of the CAR/TCL relative to the conveyance of the land and the
common areas made by the real estate developer to the Condominium
Corporation, provided, that the RDO is assured that the facts and the
circumstances surrounding such transfer are analogous to the facts and
circumstances contained in the previously promulgated rulings of the
Bureau resolving the tax issues on the matter.

4. The facts analogous to all of these promulgated rulings are as follows:

(a) The real estate developer is the registered owner of a parcel
of land which undertook a real estate development project thereat by
constructing a condominium building on said parcel of land in accordance
with the provisions of Republic Act No.(RA) 4726, otherwise known as
the Condominium Act;

(b) A Condominium Corporation is formed for the purpose of holding
the land and the common areas, either in ownership or any other
interest in real property recognized by la w, and for managing the land
and the common areas for the benefit of the condominium unit owners, and
for such other purposes as may be necessary, incidental or convenient
to the accomplishment of said purposes.

The articles of incorporation or by-laws of such Condominium
Corporation do not contain any provision contrary to or inconsistent
with the provisions of RA 4726, the enabling or master deed of
conveyance, or the declaration of restrictions of the project.

Membership in a condominium corporation, regardless of whether it
is a stock or non-stock corporation, is not transferable separately from
the condominium unit of which it is an appurtenance.

When a member or stockholder ceases to own a unit in the project in
which the condominium corporation owns or holds the common areas, he
automatically ceases to be a member or stockholder of the condominium
corporation;

(c) The Condominium Corporation while enjoying the power of
ownership is prohibited by law from transacting the properties for the
purpose of gainful profit;

(d) A Deed of Conveyance was executed between the owner-developer
and the Condominium Corporation whereby the former conveyed the title to
the said land, the common areas of the building and facilities of the
project, in favor of the latter, free from all liens and encumbrances;

(e) The said Deed of Conveyance was executed without any monetary
consideration, in pursuance to the requirements of the Condominium Act
which mandates that the Condominium Corporation shall hold title to the
common areas (including the land).

IV. DOCUMENTARY REQUIREMENTS –

Before the CAR/TCL can be issued, the concerned RDO shall first require the taxpayer to submit the following documents:

(1) Letter duly signed by the authorized representative of the
taxpayer requesting for the issuance of CAR/TCL to transfer the land and
common areas from the real estate developer to the Condominium
Corporation and stating the reasons why such real properties are being
transferred to the Condominium Corporation as well as all the facts and
information necessary for the RDO to establish that the intended
transfer is of the same kind as what is contemplated in this Circular;

(2) Certified true copy of the Notarized Master Deed of Conveyance of Land and common Areas with Declaration of Restrictions;

(3) Certified true copy of the Notarized Amendment to the Master
Deed of Conveyance of Land and Common Areas with Declaration of
Restrictions, if any;

(4) Certified true copy of the TCT of the land being conveyed;

(5) Certified true copy of the Tax Declaration of the land;

(6) Certified true copy of the Tax Declaration of the common areas;

(7) Certified true copy of the SEC Registration of the Condominium Corporation including the Articles of Incorporation; and

(8) Certified true copy of the by-laws of the Condominium Corporation.

V. TAX CONSEQUENCES OF THE TRANSFER. –

As to the tax consequences attached to this type of transfer of real property, the concerned RDO is hereby guided, as follows:

1. Based on these facts aforementioned, the Bureau has been consistent in its view that since
the Deed of Conveyance was made without consideration and not in
connection with a sale made to the Condominium Corporation, no taxable
income is realized and therefore, no creditable withholding tax is
payable and collectible;

2. In addition to the exemption from the imposition of creditable
withholding tax imposed by Revenue Regulations No. 2-98, as amended, the
Bureau has likewise held that the Deed of Conveyance executed is exempt
from the imposition of DST imposed under Sec. 196 of the Code, as
amended.

This exemption from the imposition of DST under Sec. 196 thereof
has been granted in accordance with Section 185 of the Revised
Documentary Stamp Tax Regulations (Regulations No. 26) which provides
that “conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable”;

3. However, for the notarial acknowledgment made to said Deed of
Conveyance, the same is subject to the DST of P15.00, pursuant to
Section 188 of the Code, as amended;

4. Finally, the transfer of land and the common areas to the
Condominium Corporation as embodied in the Deed of Conveyance is also
not subject to VAT under Title IV of the Code, as amended. It is to be
noted that the transfer of a real property from one party to another
where the beneficial ownership of which is retained by the original
party is not taxable. Hence, when the title of the land and the common
areas are transferred to the Condominium Corporation composed of the
condominium unit owners, the real estate developer receives no
additional payment. The conveyance is without any monetary consideration
and is not in connection with any sale in favor of the Condominium
Corporation. As such, the same can not be considered as a transaction
subject to VAT pursuant to Sec. 105 of the Code, as amended.

VI. REPEALING CLAUSE. –

All other issuances and/or portions thereof inconsistent herewith are hereby repealed or amended accordingly.

VII. EFFECTIVITY CLAUSE. –

This Order takes effect immediately.

Adopted: 26 April 2009

(SGD.) SIXTO S. ESQUIVIAS, IV
Commissioner of Internal Revenue