BIR Ruling [DA-048-05]

January 28, 2005 BIR RULING [DA-048-05] Section 27 (C); BIR Ruling No. 074-98 Nayong Pilipino MIA Road Pasay City, Metro Manila Attention: Ms. Charito L. Planas Executive Director Gentlemen : This refers to your letter dated October 30, 2002 indorsed to this Office on March 13, 2003 by the Chief of the Legal Division, Revenue Region No. 8, Makati City, Cesar A. Pangilinan requesting, in effect, for a ruling on whether Nayong Pilipino is exempt from all taxes particularly documentary stamp, capital gains, value-added, business and franchise taxes. It is represented that the Nayong Pilipino is a non-stock, non-profit public corporation, organized, established and operated in the public interest; that under Section 8 of Presidential Decree No. 37, Nayong Pilipino is exempt from all taxes, viz : "8. The Nayong Pilipino shall be exempt from all forms of taxation whatever and from duties and all other imposts on any equipment, articles or goods that it may import from abroad which may be reasonably necessary for use in or as part of its operation." that it is not operated for business or profit, that as a cultural park, it derives income from rentals, gate receipts and other sources such as the minimal budgetary support under the General Appropriations Act which is used actually, directly and exclusively for its maintenance; that this inquiry is being made more particularly to clarify whether the sale to the Manila International Airport Authority (MIAA), a government agency, of certain portions of Nayong Pilipino property covered by TCT No. 18445 with an area of 8.6 has. in the amount of P450 Million under a Memorandum of Agreement dated May 8, 2002, is exempt from documentary stamp and capital gains taxes; that Executive Order No. 111 dated June 26, 2002 authorizes such transfer to MIAA for purposes of vital infrastructure project; and that both Nayong Filipino and the MIAA are tax-exempt government/public corporation/agency. aCHDST In reply, please be informed that pursuant to Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized by the seller/transferor on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the same Code, whichever is higher, of such lands and/or buildings. On the other hand, Section 2.57.2(J) of Revenue Regulations No. 6-2001, amending Section 2.57.2(J) of Revenue Regulations No. 2-98, as amended provides that a creditable withholding tax at the rate of 6% (then 7.5%) based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, classified as ordinary asset, shall be imposed upon the withholding agent/buyer. Although Nayong Pilipino is a public corporation, it is, however, not exempt from income tax pursuant to Section 27(C) of the same Tax Code, which expressly provides that only the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR) shall be exempt from income tax (cited in BIR Ruling No. 074-98 dated May 24, 1998). Moreover, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984, and October 14, 1984, respectively, withdrew the tax and duty exemption privileges, including the preferential tax treatment, of government-owned or controlled corporations and all other units of government and private entities. Corollary to this, Executive Order No. 93 effective March 10, 1987 withdrew all tax and duty incentives granted to government and private entities. TcDAHS In view of the foregoing, your request for exemption from the payment of capital gains tax on the sale by Nayong Pilipino of that property covered by TCT No. 18445 with an area of 8.6 has. in the amount of P450 Million under a Memorandum of Agreement dated May 8, 2002 to the MIAA, a government agency is hereby denied for lack of legal basis. 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 as null and void. IDSETA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group