BIR Ruling [DA-042-04]

February 4, 2004 BIR RULING [DA-042-04] 27 (D) (5); 196; DA-542-99 Filinvest Alabang, Inc. FAI Administration Bldg., Alabang-Zapote Road Alabang, Muntinlupa City Attention: Mr. Efren M. Reyes Senior Vice-President Gentlemen : This refers to your letter dated September 2, 2002 requesting for a confirmation of your opinion that the assignment by Filinvest Alabang, Inc. (FAI) of its parking rights to purchasers of condominium units is exempt from the creditable withholding tax, capital gains tax and the documentary stamp tax. It appears that FAI is a domestic corporation and is the developer of several condominium projects, particularly the Aspen Tower and Vivian Flats in Alabang, Muntinlupa City, and Pioneer Pointe in Mandaluyong City; that individuals and juridical persons purchase units in these condominium projects from FAI and ownership of these units are transferred to the purchasers upon full payment and compliance with certain requirements; that at the option of the purchaser, said buyers may also request for the assignment of parking spaces located in the condominium projects; that FAI shall grant the purchaser the right to use the parking spaces subject to the following conditions: 1. FAI shall retain perpetual ownership over the parking space. 2. The right to use the parking space by the purchaser shall be terminated once he ceases to be an owner of a condominium unit. 3. The purchaser shall not lease, assign, mortgage or encumber the parking space. that you are of the opinion that FAI's assignment of right to use the parking space to a purchaser of a condominium unit is not subject to the expanded withholding tax, capital gains tax and stamp tax; that you believe that such transaction does not partake the nature of a sale or assignment of real property since the assignment refers only to the use of the property but ownership thereof is retained by the assignor; and that a Deed of Assignment of Parking Space Rights is not a Deed of Sale of real property itself but only the rights pertaining to such property. In reply, please be informed that under Section 27(D)(5) 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 FAI's parking rights in favor of purchasers of condominium units 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 27(D)(5) 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 Parking Space Rights 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. TcCEDS Accordingly, the assignment by FAI of its parking space rights over the said property is not subject to capital gains tax imposed under Section 27(D)(5) 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. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group