BIR Ruling [DA-087-05]

March 14, 2005 BIR RULING [DA-087-05] RR 12-89; 47-98 DeGuzman Celis & Dionisio Law Offices Suite C, 15th Floor Strata 2000 Building Emerald Avenue, Ortigas Center Pasig City Attention: Attys. Amalia E. Dionisio & Jose Paolo I. Brilliantes Gentlemen : This refers to your letter dated August 5, 2004, requesting on behalf of your client Mr. Pablo F. Sugay, for confirmation on the following: 1. The gains realized from the sale of the subject real property consummated in 1985 is not subject to withholding tax as there was no law or statute mandating the manner of collecting the tax at the time of the consummation of the sale; and 2. The tax base in determining the documentary stamp tax due on the sale consummated in 1985 is the contract price appearing in the deed of sale because prior to January 1, 1986, no zonal valuation has yet been issued by the Bureau of Internal Revenue. It is represented that on May 9, 1977, Mr. Alfonso Lim entered into a Conditional contract to Sell with Fereit Realty Development Corp. (Fereit for brevity) whereby Mr. Lim bound himself to purchase and Fereit to sell a condominium unit at Europa Mines View Condominium Villas, particularly "Innsbruck No. 1311" for a total consideration of One Hundred Fifty Eight Thousand Seven Hundred Sixty (P158,760.00) Pesos. Mr. Lim paid the amount of P58,760.00 as initial payment upon signing of the said contract. Shortly thereafter, Bancom Development Corporation (Bancom) foreclosed the entire Europa Mines Condominium Villas. Subsequently, Bancom assigned and transferred its rights to Union Bank of the Philippines. On December 9, 1983, an Agreement of Purchase and Sale was executed by and between Mr. Lim and Mr. Sugay whereby the former assigned all his rights in regard to "Innsbruck No. 1311" with respect to afore-mentioned Conditional Contract to Sell. EDcIAC Mr. Sugay sought the restructuring of the obligation of Mr. Lim with Union Bank which the latter approved. Mr. Sugay complied with the restructured terms of payment and fully paid the obligation in the amount of One Hundred Six Thousand Three Hundred Fifty Seven Pesos and Twenty Eight Centavos (P106,357.28) to Union Bank sometime in May 1985. However, Union Bank failed to execute the necessary Deed of Absolute Sale until May 7, 2004 despite repeated demands from Mr. Sugay. In reply thereto, please be informed of the following. 1. The property sold in the instant case is considered an ordinary asset of Union Bank. The Expanded Withholding Tax (EWT) on the sales or transfers of real property other than capital asset was first introduced by Revenue Regulations No. 12-89 and the said Regulations explicitly provides that the same shall apply only to sales, exchanges or transfers of real properties classified as ordinary assets consummated on or after January 1, 1990. Since the sale of real property, as herein represented, was consummated in May 1985 or before the effectivity of the aforementioned Regulations, this Office believes that the subject sale is not subject to creditable withholding tax imposed under RR 12-89 as amended by RR 1-90 and 12-94, which provided for the 7.5% EWT rate, since the said Regulations took effect only on January 1, 1990. ( BIR Ruling No. 47-98 dated April 14, 1998 ) Accordingly, this Office hereby confirms your opinion that the gains realized from the sale of the subject real property consummated in 1985 is not subject to withholding tax as there was no law or statute mandating the manner of collecting the tax at the time of the consummation of the sale. 2. Your opinion that the tax base in determining the documentary stamp tax due on the sale consummated in 1985 is the contract price appearing in the deed of sale is also confirmed since the BIR started making the zonal valuation over real properties only in the year 1987. 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. DTIaCS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group