BIR Ruling [DA-090-03]

March 20, 2003 BIR RULING [DA-090-03] Enofreo G. Villena C/O Starpack Philippines Corporation Suburban Drive, Mapandan Cainta, Rizal S i r : This refers to your letter dated February 24, 2003 requesting for an opinion as to the correct valuation to be applied for purposes of computing the creditable withholding tax and the corresponding documentary stamp tax, relative to the sale of two (2) parcels of land, which are classified as industrial at a unit value of P2,800.00 each under its tax declaration, although the classification and valuation of the aforesaid properties have already been established and determined as residential with a zonal value of P2,000.00 per square meter. It is represented that Starpack Philippines Corporation [formerly AR Packaging Corporation] is the absolute and registered owner of two (2) parcels of land located at Suburban Drive, Mapandan, Cainta, Rizal covered by TCT Nos. 648053 and 648054 issued by the Registry of Deeds for the Province of Rizal with an aggregate area of 21,319 square meters; that on December 4, 1998, a Deed of Absolute Sale was executed by and between Starpack Philippines Corporation and SPC Realty Corporation whereby the former transferred to the latter the above-mentioned properties for a consideration of P53,298,000.00, which are payable as follows: (a) P5,000,000.00 upon the execution of the Deed of Absolute Sale; and (b) The remaining balance of P48,298,000.00 shall be paid monthly within a period of one year beginning January 1, 1999 in amounts depending upon the cash flow of the buyer; provided that, the entire remaining balance shall be fully paid within the one year period beginning January 1, 1999; that the essential features of the said sale are as follows: (1) SPC Realty Corporation, as the buyer, agreed and acknowledged that as an essential consideration on the part of the seller, Starpack Philippines Corporation, in agreeing to sell the property to the former, it will lease back the property to the latter under the terms and conditions to be set out in a Contract of Lease to be executed by the parties simultaneously with the signing the of the aforesaid Deed of Absolute Sale; (2) Any and all documentary stamp tax, local transfer tax, registration fees, and other expenses arising from or in connection with or incidental to the sale and transfer of the property to the buyer shall be for the account of the buyer and paid by the buyer ...; that on January 11, 1999, SPC Realty Corporation had paid the corresponding documentary stamp tax in the amount of P799,470.00 as evidenced by the BIR Validation Receipt No. 017701 and Official Receipt No. 111367 issued by the Pilipinas Bank-Makati Branch, while the creditable withholding tax at the rate of 7.5% had been withheld and remitted to the BIR in the aggregate amount of P3,997,350.00 based on the gross selling price of P53,298,000.00. In reply thereto, please be informed that Section 6(E) of the Tax Code of 1997 provides that the Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of: "(1) the fair market value as determined by the Commissioner, or "(2) the fair market value as shown in the schedule of values of the Provincial and City Assessors." It is clear from the above-cited section that for purposes of computing the internal revenue tax (like capital gains tax, creditable withholding tax, documentary stamp tax, etc.),the Commissioner is authorized to determine the fair market value of the properties in specific zones or areas, and such determination, if higher than the zonal value as determined by the Commissioner shall be the basis of the said tax. Considering that the value of the aforesaid properties, which are classified as industrial under its tax declaration, is assessed at P2,800.00 per square meter, and which is higher than the zonal value as classified and established by the Commissioner, then the Assessor's value shall be the basis in computing the creditable withholding tax and documentary stamp tax relative to the sale of the above-mentioned properties. AEHCDa Accordingly, the correct valuation to be applied for purposes of computing the creditable withholding and documentary stamp taxes shall be the assessed value of P2,800.00 per square meter, classified as industrial, under its tax declaration. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group