BIR Ruling [DA-054-00]

January 31, 2000 BIR RULING [DA-054-00] 24 (D) (1) 174-90-DA-054-2000 Mr . Nimrod E . Javier No. 84 Diamond St., Northview I FILINVEST II, Batasan, Quezon City S i r : This refers to your letter dated December 20, 1999 requesting in effect, for a ruling that the transfer of your rights over a realty in favor of Consuelo Cristi Veronica J. Galve, is exempt from the capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. cdlex It is represented that on May 13, 1997, you bought residential condominium Unit No. 0645 in Cityland Pioneer Project located at Pioneer Street, Mandaluyong City under a 6-year installment plan from Cityland Development Corporation ("Cityland"); that due to financial constraint, you could no longer continue paying the remaining monthly amortization hence, on December 20, 1999, you executed a Deed of Assignment with Assumption of Obligations in favor of your relative, Ms. Consuelo Cristi Veronica J. Galve wherein you transferred your rights over the abovementioned property with the condition that she would be directly responsible for all amounts due and payable to Cityland; and that said transaction is without any monetary consideration. In reply, please be informed that pursuant to Section 2.57-1 (A)(6) of Revenue Regulations No. 2-98, implementing Section 24 (D)(1) of the Tax Code of 1997, a final withholding tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the same Tax Code., whichever is higher. From the foregoing, it is clear that only sales, exchanges or transfers of real properties are subject to the final withholding tax imposed under Section 24 (D)(1) of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-98; hence, assignments of rights over realty although classified as real property under the Civil Code, are not included within the purview of the said regulations 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 rights assigned pertain. Moreover, a Deed of Assignment 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. (BIR Ruling No. 174-90 dated September 10, 1990). Such being the case and since the transfer of your rights over the abovementioned realty in favor of Consuelo Cristi Veronica J. Galve, is without any monetary consideration, this Office is of the opinion as it hereby holds that it is not subject to the withholding tax imposed under Section 2.57-1 (A)(6) of Revenue Regulations No. 2-98. Moreover, the Transfer of Rights with Assumption of Liability is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, but subject to the documentary stamp tax of P15.00 on certificates imposed under Section 188 of the same Code. However, it is understood that the gain which you may derived as a consequence of the assignment of the said property in favor of Consuelo Cristi Veronica J. Galve is subject to income tax. 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. EQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)