BIR Ruling [DA-066-06]

March 1, 2006 BIR RULING [DA-066-06] Section 24 (D) (1); DA-633-2004 Ms. Rizalina Desbaro Silangan, San Miguel Bulacan M a d a m : This refers to your letter dated January 11, 2006 requesting for a ruling that the transfer of rights over a parcel of land in your favor be exempt from the capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. It is represented that on September 8, 2005, a Deed of Conditional Sale was entered into by Rizal Commercial Banking Corporation, as vendor and Ermina A. Macanas, as vendee; that the vendee has offered to purchase the property of the vendor located at Barangay Sapang Putik, San Ildefonso, Bulacan covered by Transfer Certificate of Title No. T-209680 (T-49180) with an area of Twenty Seven Thousand and Forty Nine (27,049) square meters for a consideration of P7,250,000.00; that the vendee paid fifty percent (50%) of the purchase price amounting to P3,625,000.00; that on October 10, 2005, the vendor paid the capital gains tax amounting to P435,000.00 for the above transaction; that on January 6, 2006, a Deed of Assignment was entered into by you and the vendee for a consideration of P3,625,000.00; and that you shall assume all the obligations and terms and conditions stated in the Deed of Conditional Sale. cCHETI 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 Nos. 083-99 dated June 22, 1999 and DA-024-2000 dated January 11, 2000) Such being the case, this Office is of the opinion as it hereby holds that the aforesaid transfer of rights is not subject to the final withholding tax imposed under Section 2.57-1 (A)(6) of Revenue Regulations No. 2-98 nor to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of said Deed of Assignment is subject to the documentary stamp tax of P15.00 on certificates under Section 188 of the same Code. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service