BIR Ruling [DA-145-06]

March 17, 2006 BIR RULING [DA-145-06] Section 24 (D) (1); DA-083-99; DA-024-2000 Ms. Celestina L. Cajucom 132 Amar Village, Balibago Santa Rosa City, Laguna M a d a m : This refers to your letter dated July 28, 2005 requesting for a ruling that the transfer of your rights over a condominium unit in favor of Ma. Theresa S. Diaz be exempt from the capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. It is represented that you executed an undated Transfer of Rights Application on a residential condominium Unit No. 2202 of Cityland Condominium Vito Cruz Tower II located at 720 Pablo Ocampo Sr., Avenue, Malate, Manila with an area of 29.340 square meters more or less, in favor of Ma. Theresa S. Diaz; that a Deed of Assignment with Assumption of Obligations was executed by the parties dated September 28, 2005; and that you request that you be exempted from the capital gains tax and documentary stamp tax. In reply, please be informed that pursuant to Section 2.57-1 (A)(6) of Revenue Regulations No. 2-98, implementing Section 24 (D)(1) of the Tax Code of 1997, a final withholding tax of six percent (6%) 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 Tax Code, whichever is higher. HTIEaS 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 24 (D)(1) of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-98; hence, 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 Nos. 083-99 dated June 22, 1999 and DA-024-2000 dated January 11, 2000) Nonetheless, if the assignment generates gain on the part of the assignor, the gain is taxable under the regular rates. Such being the case, this Office is of the opinion as it hereby holds that the aforesaid transfer of rights is not subject to the final withholding tax imposed under Section 2.57-1 (A)(6) of Revenue Regulations No. 2-98 nor to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of said Deed of Assignment is subject to the documentary stamp tax of P1.5.00 on certificates under Section 188 of the same Code. 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. TCcIaA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service