BIR Ruling [DA-025-00]

January 11, 2000 BIR RULING [DA-025-00] Mr . Dan Rommel M . Canlas 7th Floor, ASB Center 114 Benavidez St., Legaspi Village Makati City S i r : This refers to your letter dated August 25, 1998 which was endorsed to this Office by the Regional Director of Revenue Region No. 7 stating that you purchased from City and Land Developers, Inc., a residential condominium unit in the Mega Plaza Condominium in Ortigas Center, Pasig City on installment basis; that at present, you are in the process of assigning your rights to Ronaldo A. Orlain and Aileen A. Orlain due to financial constraints; that the transfer of rights needs the approval of Cityland for which the Title of said unit is still registered; that in the transfer of rights application which you are filing with Cityland, the following provisions are stipulated. ". . . We are aware of BIR possible assessments in view of the present transfer of rights applied for: Should the BIR require payment of capital gains tax or withholding tax based on the selling price per Contract to Sell, market or zonal valuation of BIR whichever is higher, we have agreed that the ASSIGNEE shall be liable to pay such taxes, otherwise the title will not and cannot be transferred to his name upon full payment . . " Based on the foregoing, you are now requesting exemption from the payment of capital gains tax and documentary stamp tax on the sale of your right on the said condominium unit. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines classified as capital asset including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trust. In the instant case, however, your assigning of right in favor Mr. Ronaldo A. Orlain and Ms. Aileen A. Orlain is not a sale, exchange or disposition of real property classified as capital asset located in the Philippines but rather a sale of right pertaining to such property, hence, not included within the provision of Section 24(D)(1) of the Tax Code of 1997. This is so, considering that in assignments of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the assigned right pertains. Moreover, a Deed of Assignment of Right is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. It is however understood, that the gain derived by the assignor from and as a consequence thereof, is subject to income tax. (BIR Ruling No. 174-90 dated September 10, 1990) Accordingly, your assignment of right in favor of Mr. Ronaldo A. Orlain and Ms. Aileen A. Orlain over the said property is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax prescribed under Section 196 of the same Code. The notarial acknowledgment of the deed however, is subject to the P15.00 DST pursuant to Sec. 188 of the Tax Code of 1997. llcd 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group