BIR Ruling [DA-150-04]

March 30, 2004 BIR RULING [DA-150-04] RR No. 12-89 DA-508-2003 Mr. Vicente Costa 74 Loreto Street, Sampaloc Manila S i r : This refers to your letter dated July 30, 2002 requesting for exemption from the payment of capital gains tax. It is represented that this is a sale by Ligaya Tesalona, through her Attorney-in Fact Reynaldo Garcia, of an apartment situated at No. 74 Loreto St, Sampaloc, Manila and parcels of land owned by R.V.T. Realty & Development Corporation (RVT) over which the apartment stood to Vicente Costa (plaintiffs, for brevity); that said parcels of land were covered by Transfer Certificates of Title No. 130909, 177737 and 177738; that the said apartment building and land was sold for a total consideration of P35,695.00 on installment basis; that a down payment of P17,800.00 was made and the balance payable within a period of three months was agreed; that for the months of July and August, 1987, total payments made was P23,000.00; that on September 3, 1987, the spouses were paying the amount of P6,342.50 in cash; that RVT refused to accept payment for unknown reasons; that on September 22 and 24, 1987, the entire balance of P12,695.00 was being tendered, but again RVT refused to accept; that due to the unwarranted refusal of RVT to accept the tender of payment, the spouses had no recourse but to file a civil case against RVT which was docketed as Civil Complaint No. 87-42347 that lasted for fourteen years; that the case was resolved only on July 2, 1997 and a supplemental order dated March 1, 2002 issued in your favor; that all the parties in this case who are liable to pay under the law the capital gains tax and documentary stamp tax and other related taxes were all dead and the corporation is no longer existing and its officers are nowhere to be found, as certified by the sheriff; and that you believe that these circumstances should be considered to extinguish all tax liabilities that may be due to the government. In reply, please be informed that the law or BIR issuance at the time of the transaction should be applied. The order of the Court divesting the title over the land subject to this case in your favor was granted in July 2, 1997 is merely a confirmation of title. Accordingly, the sale of the apartment to you in 1987 is not subject to the expanded withholding tax nor to the creditable withholding tax. It is, however, subject to the ordinary income tax since the seller is a corporation. In this connection, the creditable withholding tax on sale of properties was first introduced in Section 1 of Revenue Regulations No. 12-89, amending Revenue Regulations No. 6-85. Thus, "SEC. 1. Section 1 of Revenue Regulations No. 6-85, as amended, is hereby further amended by adding paragraph (j). Sale of real property other than capital asset. A creditable withholding tax shall be withheld on the gross selling price or the total amount of money or its equivalent which the purchaser pays to the vendor at rates prescribed herein below; (i) by the corporations on the amount paid 10% (ii) by the individuals on the amount paid 15% (iii) on taxpayers not falling under (i) or (ii) above, such as estate, trust, trust funds and pension funds among others 15%" (Emphasis supplied.) On that basis, at the time of the perfection of the sale of the apartment, no withholding tax was yet due. The gains derived by a corporation from the sale of real property were subject to the tax rate of 35% as prescribed by Section 24 of the Tax Code of 1977, as amended. The computation of the gain from the sale of the said apartment should be based on the gross selling price. Therefore, if the initial payments made by the buyer exceeded 25% of the gross selling price, as what happened in this transaction, the sale is deemed to be on deferred payment basis and the gain derived by the defendant corporation should have been reported and paid by it during the year of the sale. SaHcAC However, since the sale was fully consummated in 1987, the tax base in the computation of the documentary stamp tax shall be the actual consideration as stated in the final order of the Court in 2002 and shall be subject to the rates prescribed under Section 196 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group