BIR Ruling [DA-111-00]

February 21, 2000 BIR RULING [DA-111-00] Government Service Insurance System Financial Center Pasay City, Metro Manila Attention: Ms . Josefina I . Valera Vice President Housing Finance Services Gentlemen : This refers to your letter dated October 26, 1999 requesting for opinion from this Office as to whether you are prohibited by any BIR rules and regulations from issuing Deed of Absolute Sale directly in the name of the buyers/transferees/assignees of rights of housing units financed by the Government Service Insurance System (GSIS) in favor of its members under the Agency's mass housing program. It is represented that some GSIS members who availed of the mass housing program of the Agency had already sold/transferred/assigned their rights to third parties prior to the full payment of their housing loans with the System; that after the buyers/transferees/assignees of rights had paid in full the housing loans of the concerned members, they are now requesting that GSIS issue the Deed of Absolute Sale directly in their names; that you recognize the validity of the said transactions as the same are allowed under Section 5 of Republic Act No. 6552, otherwise known as An Act to Provide Protection to Buyers of Real Estate on Installment Payments, to wit: "Under Sections 3 and 4, the buyer shall have the right to sell his right or assign the same to another person or to reinstate the contract by updating the account during the grace period and before the actual cancellation of the contract. The Deed of Sale or Assignment shall be done by notarial act." In reply, please be informed that the issue as to whether or not GSIS can issue Deeds of Absolute Sale directly in the name of the buyers/transferees/assignees of rights of housing units financed by the GSIS in favor of its members under the Agency's mass housing program, is not within the province of this Office to determine. However, this Office is concerned with the tax implications of the aforesaid transaction. For purposes of taxation, Section 2.57.1 (G)(5) of Revenue Regulations No. 2-98, implementing Section 27(D)(5) of the Tax Code of 1997 provides that a final withholding tax of six (6%) percent 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 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. Accordingly, 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) Such being the case, this Office is of the opinion as it hereby holds that the transfer of rights over a realty made by a GSIS member in favor of his/her assignee is not subject to the capital gains tax nor to the creditable withholding tax imposed under Revenue Regulations No. 2-98. However, the Deed of Assignment is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Moreover, the gain derived by an assignor from and as a consequence of such assignment/transfer is subject to income tax. Thus, this Office is not the proper forum to address the issue as to whether or not GSIS can issue Deeds of Absolute Sale directly in the name of the buyers/transferees/assignees of rights of housing units financed by the GSIS in favor of its members under the Agency's mass housing program as this issue will depend upon the existing contract between GSIS and its member-beneficiaries Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group