BIR Ruling [DA-026-00]

January 11, 2000 BIR RULING [DA-026-00] Ms . Marilyn B . Angeles 21 Apollo St., Acropolis Quezon City M a d a m : This refers to your letter dated November 24, 1999 stating that you are presently paying a four-year installment plan under the Contract to Sell for a condominium unit of 37.28 sq. m. (Unit 2725) of "The Mega Plaza", a building project of City & Land Developers, Inc. located at Bo. Oranbo, Pasig City; that the contract price of aforesaid condominium unit is Nine Hundred Thirty Eight Thousand Eight Hundred Twenty One Pesos (P938,821.00) (excluding interest) of which you have already paid Six Hundred Sixty Two Thousand Four Hundred Forty Seven Pesos (P662,447.00) [P187,764.20 as downpayment plus P474,682.80 equivalent to twenty four (24) months amortization]; that at present you are assigning your rights under this contract to Mr. Gerardo J. Espina., Jr. because of financial reasons; that in consideration of the transfer of rights, Gerardo J. Espina, Jr. will pay you back the payments you have made for the said condominium unit; and that in this regard, the developer, City & Land Developers, Inc. requires the payment of capital gains tax of six percent (6%) and documentary stamp tax of one and one-half percent (1.5%) Based on the foregoing representation and documents submitted, you are now requesting for a ruling that you are exempted from the payment of capital gains tax and documentary stamp tax on your Assignment of Rights with Assumption of Obligations in the Contract to Sell in favor of Gerardo J. Espina, Jr. 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, the transfer of your property in favor of Gerardo J. Espina, Jr. was not a sale, exchange or disposition of real property classified as capital asset located in the Philippines but rather an assignment 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 assignment of right, 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. Accordingly, the assignment by Marilyn B. Angeles, married to Leonardo C. Angeles in favor of Gerardo J. Espina, Jr. of her rights 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 P15.00 documentary stamp tax pursuant to Sec. 188 of the Tax Code of 1997. cdll 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