BIR Ruling [DA-014-03]

January 16, 2003 BIR RULING [DA-014-03] 196; 097-96 dated September 9, 1996 Ayala Land, Inc. Tower One, Ayala Triangle Ayala Avenue Makati City Attention: Atty. Ma. Angeli L. Ferrer Department Manager Gentlemen : This refers to your letter dated November 5, 2002 requesting for a ruling to the effect that the documentary stamp tax is payable upon the execution of the Deed of Absolute Sale which conveys title to the property in favor of the purchaser and not upon the execution of the Contract to Sell between the parties; and for the issuance of the Certificate Authorizing Registration (CAR) so that title to the property may now be transferred in favor of the purchaser. It is represented that Ayala Land, Inc. (Seller), is a domestic corporation primarily engaged in real estate development; that it is the developer of a condominium project known as the Pineridge (Project) in Baguio City; that to evidence the agreement to buy and sell a condominium unit (Unit) in the project, the Seller executed Contracts to Sell in favor of the purchaser; that among the purchasers in the Project are the following persons: (1) Juan Ignacio C. Arnaiz, Francis C. Arnaiz, Elena A. De Larrazabal and Leopoldo C. Arnaiz; (2) Le Ching T. Lim and Timothy Ma Ang; and (3) Teresita L. Soliman; that under the terms of the Contract to Sell, the Seller shall transfer and convey to the purchaser title to the unit, upon compliance by the purchaser with certain conditions, such as the full payment of the purchase price and the taxes, costs, and expenses incidental to conveyance of title to the unit; that upon compliance by the purchaser of his obligations under the Contract to Sell, the Seller shall transfer and convey to the purchaser title to the unit, upon compliance by the purchaser with certain conditions, such as the full payment of the purchase price and the taxes, costs, and expenses incidental to conveyance of title to the unit; that upon compliance by the purchase of his obligations under the Contract to Sell, a Deed of Absolute Sale evidencing the transfer of legal title to the unit in favor of the purchaser was executed by the parties; that the corresponding documentary stamp tax (DST) accruing on the Deeds of Absolute Sale executed by the purchasers was paid and remitted to the BIR on the due date therefore; that notwithstanding the payment of the DST on the Deeds of Absolute Sale as aforesaid and the BIR Ruling specifically obtained by the Seller for the Pinebridge Project on the same issue, Revenue District Officer (RDO) Amado Q. Navarro of RDO No. 08, Baguio City, assessed the purchasers the 25% surcharge allegedly for late payment of the DST on the ground that the DST should have been paid on the due date following the execution of the Contract Sell, and not on the Deed of Absolute Sale. In reply thereto, please be informed that Section 196 of the Tax Code of 1997 provides that "Sec. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings, . . . whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates hereinbelow prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: . . . ." "(a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000.00), Fifteen pesos (P15.00); "(b) For each additional One thousand pesos (P1,000.00), or fractional part thereof in excess of One thousand pesos (P1,000.00) of such consideration or value, fifteen pesos (P15.00). xxx xxx xxx the documentary stamp tax on sales of real property is imposable on deeds or instruments conveying title to real property. To determine whether a contract for sale of real property is subject to the documentary stamp tax, Revenue Regulations No. 26, as amended by Revenue Regulations No. 9-94, otherwise known as the Revised Documentary Stamp Regulations, provides: "Section 163. Contract for sale of land . If a contract for the sale of land vests title on the land and improvements thereon, it would be subject to taxation as a conveyance. If it does not vest title but contains only certain provisions for the giving of a deed in the future upon compliance with conditions precedent, it is not subject to tax ." (Emphasis supplied) Thus, the execution of a Contract to Sell which does not vest title in the vendee is not subject to documentary stamp tax under Section 196 of the Tax Code of 1997. It is the Deed of Absolute Sale which transfers title to real property and evidences the consummation of the Contract to Sell. The former comes after the latter. Accordingly, the operative act for purposes of the imposition of the documentary stamp tax under said Section 196 is the execution of the Deed of Absolute Sale. ( BIR Ruling No. 097-96 dated September 9, 1996 ) IN VIEW OF THE FOREGOING, this Office holds that the documentary stamp tax in this case should be due and payable upon the execution of the Deed of Absolute Sale between Ayala Land, Inc., as the seller and the above-named buyers and not upon the execution of the Contract to Sell. Finally, this will therefore serve as an authority for the Revenue District Officer, Amado Q. Navarro of RDO No. 08, Baguio City to issue the Certificate Authorizing Registration (CAR) so that title to the properties may now be transferred in favor of the above-named buyers upon presentation of proof of payment of the documentary stamp tax on the Deed of Absolute Sale. 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. ADTCaI Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group