BIR Ruling [DA-084-00]

February 8, 2000 BIR RULING [DA-084-00] 27 (D) (5) 174-90; 083-99 Napoleon V. de los Reyes and Estrella V. de los Reyes-Subala Unit 22, Lower Ground Floor Cityland De La Rosa Condominium De La Rosa cor. Washington St, Makati Gentlemen : This refers to your letter dated October 5, 1999 requesting in effect, for a ruling that the transfer of rights over a realty made by J.P. DE LOS REYES REALTY & DEV. CORP. ("J.P. Realty") in your favor, is exempt from the capital gains tax imposed under Section 27 (D)(5) of the Tax Code of 1997 Documents submitted show that on March 21, 1996, J.P. Realty bought residential-studio condominium Unit No. 1404, Cityland Shaw Tower Condominium, St. Francis St cor. Shaw Blvd, Mandaluyong City under a 4-year installment plan from Cityland, Inc. ("Cityland"); that the above transaction is only a facilitation by J.P. Realty in your favor, as its stockholders, since at the time of the application to purchase the abovementioned property your personal credit rating were insufficient, in so far as the standard of Cityland is concerned; that in order to have the approval of your request, you used the name of J.P. Realty; that as a result thereof, the contract to sell was executed and issued in the name of J.P. Realty when in fact and in truth, the real buyer is you; that as of October 5, 1999, a contract of Transfer of Rights with Assumption of Liability was executed by J.P. Realty in your favor over the abovementioned property with the condition that upon signing of the contract, you shall be directly responsible for all amounts due and payable to Cityland, including the updating of any and all financing charges or arrears; and that although said Transfer of Rights with Assumption of Obligations appears to have been executed for and in consideration of the amount of One Thousand Pesos (P1,000.00), no actual consideration was ever given by the transferees nor was any amount actually received by the transferor. In reply, please be informed that pursuant to Section 2.57-1 (G)(5) of Revenue Regulations No 2-98, implementing Section 27 (D)(5) 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 27 (D)(5) 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) aCSTDc Such being the case, this Office is of the opinion as it hereby holds that the transfer of rights over a realty made by J.P. Realty in your favor is not subject to the capital gains tax nor to the creditable withholding tax imposed under 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 may be derived by J.P. Realty as a consequence of the assignment of the said property in your favor 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. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)