BIR Ruling [DA-084-02]

May 2, 2002 BIR RULING [DA-084-02] RR 6-2001 #035-94; 143-99; 059-99 Golden Square Properties & Development Corporation 72-A Malakas St., near V. Luna Road, Quezon City Attention: Mrs. Felicidad L. Ng Gentlemen : This refers to your letter dated February 21, 2002 requesting for a ruling regarding the applicable rate of creditable withholding tax to be imposed on the sale of your real properties which are listed in your inventories, pursuant to Revenue Regulations No. 6-2001. It is represented that Golden Square Properties and Development Corporation is registered with the Housing and Land Use Regulatory Board (HLURB) under Real Estate Registration No. 2001-114; that it is a corporation engaged in buying and selling real estate properties; and that at present, the corporation is not yet developing its properties but just selling some of its inventories classified as ordinary asset. In reply, please be informed that under Section 3(J) of Revenue Regulations No. 6-2001, a creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Tax Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange or real property, other than capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule: DTAESI "xxx xxx xxx B. Upon the following values of real property, where the seller/transferor is habitually engaged in the real estate business: With a selling price of Five Hundred 1.5% Thousand Pesos (P500,000.00) or less With a selling price of more than Five 3.0% Hundred Thousand Pesos (P500,000.00) but not more than Two Million Pesos (P2,000,000.00) With a selling price of more than Two 5.0% Million Pesos (P2,000,000.00) xxx xxx xxx." The registration of a corporation with the HLURB or HUDCC shall be sufficient for such corporation as seller/transferor to be considered as habitually engaged in the real estate business. If the seller/transferor corporation is not registered with HLURB or HUDCC, it may prove that it is engaged in the real estate business by offering other satisfactory evidence (for example, it consummated during the preceding year at least six taxable real estate transactions, regardless of amount). However, if the buyer is engaged in trade or business, whether a corporation or otherwise, these rules shall apply: (i) If the sale is a sale of property on the installment plan (that is, payments in the year of sale do not exceed 25% of the selling price), the tax shall be deducted and withheld by the buyer on every installment. (ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the gross selling price or fair market value of the property, whichever is higher, on the first installment. In any case, no Certification Authorizing Registration (CAR) shall be issued to the buyer unless the creditable withholding tax due on the sale, transfer or exchange of real property other than capital asset has been fully paid. On the basis of the foregoing, being a corporation habitually engaged in the real estate business, the sale of real estate properties classified as ordinary asset by Golden Square Properties & Development Corporation shall be subject to the creditable withholding tax rates prescribed under Section 3(J) of Revenue Regulations No. 6-2001. 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.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service