BIR Ruling [DA-110-04]

March 11, 2004 BIR RULING [DA-110-04] CA 466; DA-508-2003 Bangko Sentral ng Pilipinas Manila Attention: Atty. Rene N. Carreon Director, Asset Management Department and Mr. Ramon V. San Jose III Consultant, Asset Management Department Gentlemen : This refers to your letter dated December 17, 2003 stating that upon the request of Mrs. Imelda Marcos, the Central Bank of the Philippines (CBP) purchased ten hectares of land at the Cultural Center of the Philippines (CCP) Complex for a total consideration of P100,000,000.00 as evidenced by the following documents: 1. Deed of Absolute Sale dated March 26, 1974 signed by Mrs. Imelda Marcos, Chairman of the Board of Trustees of the CCP and Mr. Amado Brinas, Senior Deputy Governor of the CBP, for the purchase of five hectares of land; 2. Memorandum of Agreement dated September 10, 1974 signed by Mrs. Imelda Marcos and Mr. G.S. Licaros, Governor of the CBP, for the exchange of the five hectares of land originally purchased with a ten-hectare lot; and 3. Deed of Absolute Sale and Exchange of Real Property dated April 21, 1976 signed by Mrs. Imelda Marcos and Governor G.S. Licaros, for the purchase of the ten-hectare lot. that the payments for the P100,000,000.00 contract price in consideration for the aforestated property were made from February 1974 to June 1976; that due to the insufficiency of the ten-hectare lot to serve the complete requirements of an international convention center, now the Philippine International Convention Center (PICC), the Governor of the CBP in his letter to Mrs. Imelda Marcos dated April 30, 1976 recommended the purchase of an additional two-hectare lot as parking area; that the recommendation to purchase the additional two hectares (2 ha.), at the price of P1,000.00 per square meter or a total of P20,000,000.00 was made to the CBP Monetary Board on May 17, 1976 and June 28, 1976; that a CBP Expense Check was then issued on June 29, 1976, amounting to P20,000,000.00 payable to CCP, which was thereafter deposited by the latter to Current Account No. 050-0154 with the PNB Harrison Plaza Branch on July 29, 1976; that the CBP Monetary Board under Resolution No. 1279 dated July 2, 1976 confirmed its decision to purchase an additional 2 ha. of land and authorized the P20,000,000.00 payment which was made in advance to the CCP; that for some unexplainable reason, considering the political climate that prevailed during the Martial Law regime, a Deed of Sale was never executed; that a Deed of Sale was recently executed by the CCP for the 2 ha. lot in favor of Bangko Sentral ng Pilipinas (BSP); that capital gains and documentary stamp taxes are being assessed at the current zonal value of the lot when in fact the transaction took place in 1976; that you are attaching the following documents as evidence that CBP had acquired the 2 ha. lot in 1976: 1. Secretary's Certificate verifying the CBP Monetary Board Resolution No. 1279 dated July 2, 1976 confirming its decision to purchase an additional two hectares of land and authorizing the P20 million payment made in advance to the CCP; and 2. Copy of the CBP Expense Check which was issued on June 29, 1976 amounting to P20 million payable to the CCP, which was deposited by the latter to Current Account No. 050-0154 with the PNB Harrison Plaza Branch on July 29, 1976. CacTSI that you now request that the assessment of taxes on the said property should be based on the purchase price of P20,000,000.00, since no zonal valuation was yet prescribed at that time; and that you further request for the waiver of any penalties or surcharges that may be imposed by the BIR. In reply, please be informed that Section 5 of Presidential Decree (PD) No. 179 states that: ''Sec. 5. Section thirteen of the same Decree is hereby amended to read as follows: Sec. 13. Tax Exemption . The provision of Section 1205 of the Tariff and Customs Code, as amended by Presidential Decree No. 34 dated October 28, 1972, Section 190 of the Tax Code, as amended by Presidential Decree No. 69 dated November 24, 1972, and other existing laws notwithstanding, the Center shall be exempt from all firms of taxation whatever and from duties and all other imposts on any equipment, articles, goods or services that it may import from abroad which may be reasonably be necessary for use in or part of its operations." (italics supplied) Under the foregoing provision, CCP enjoys exemption from all forms of taxation. Thus, at the time of the sale of the 2 ha. property to CBP, CCP was not liable to pay the ordinary income tax then imposed under Commonwealth Act (CA) No. 466, as amended by Presidential Decree No. 69, which is the law subsisting in 1976 when the sale was fully consummated. Likewise, the execution of a Deed of Sale serves as a proof of the transaction so had in 1976, and as consistently held by this Office, is deemed merely a confirmation of title over the property. (BIR Ruling No. 097-96 dated September 9, 1996) Furthermore, as there was no document executed at the time of sale, this leads to the conclusion that the corresponding documentary stamp tax has not been paid. Section 196 of the Tax Code of 1997 imposes a documentary stamp tax on the transfer of realty based on the consideration to be paid for such realty or on its fair market value, whichever, is higher, as determined in accordance with Sec. 6(E) of the same Code, and at the rates prescribed therein. While CCP is held exempt from all forms of taxes, Section 173 of the Tax Code of 1997 provides that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax". Accordingly, CBP shall be the one liable to the documentary stamp tax prescribed under said Section 196, based on the actual consideration of P20,000,000.00 at the rates prescribed thereof. (BIR Ruling No. DA-508-2003 dated December 16, 2003) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. cCESaH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group