BIR Ruling [DA-163-00]

March 21, 2000 BIR RULING [DA-163-00] 196; 097-96 Ayala Land, Inc. Tower One, Ayala Triangle Ayala Avenue 1226 Makati City Attention: Atty. Renato O. Marzan Assistant Corporate Secretary Gentlemen : This refers to your letter dated September 15, 1999 stating that Ayala Land, Inc. ("ALI") is a domestic corporation engaged in real estate development; that ALI is the developer of a condominium project known as The Pineridge (the "Project") in Baguio City; that to evidence the agreement to buy and sell a condominium unit (the "Unit") in the Project, ALI and the buyers of the Unit executed a Contract to Sell; that under the terms of the Contract to Sell, ALI shall transfer and convey to the buyer/s title to the Unit, and a Deed of Absolute Sale shall be executed between the parties, upon compliance by the buyer with certain conditions, which includes the full payment of the purchase price and the taxes, costs, and expenses incidental to conveyance of title to the Unit, and compliance with other terms, restrictions or obligations in the Contract to Sell and the Master Deed with Declaration of Restrictions of the Project (the "Master Deed"); and that upon full payment thereof by the Purchaser, a Deed of Absolute Sale evidencing the transfer of legal title to the Unit in favor of the Purchaser will be executed between the parties. Based on the foregoing, you now request for confirmation of your opinion that the documentary stamp tax is payable upon the execution of the Deed of Absolute Sale which conveys title to the Unit in favor of the Purchaser, and not upon the execution of the Contract to Sell. In reply, please be informed that under Section 196 of the Tax Code of 1997, "Sec. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings . . . whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers , or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates hereinbelow prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: . . . "(a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000.00), Fifteen pesos (P15.00). "(b) For each additional One thousand pesos (P1,000.00), or fractional part thereof in excess of One thousand pesos (P1,000.00) of such consideration or value, Fifteen pesos (P15.00). xxx xxx xxx" the documentary stamp tax on sales of real property is imposable on deeds or instruments conveying real property. To determine whether a contract for sale of real property is conveyed, Revenue Regulations (RR) No. 26, as amended by RR No. 9-94, otherwise known as the Revised Documentary Stamp Regulations, provides: TaHDAS "Section 163. Contract for sale of land . If a contract for the sale of land vests title on the land and improvements thereon, it would be subject to taxation as a conveyance. If it does not vest title but contains only certain provisions for the giving of a deed in the future upon compliance with conditions precedent, it is not subject to tax ." (Emphasis supplied) Thus, the execution of a Contract to Sell which does not vest title in the vendee is not subject to documentary stamp tax under Section 196 of the Tax Code of 1997. It is the Deed of Absolute Sale which transfers title to real property and evidences the consummation of the Contract to Sell. The former comes after the latter. Thus, the operative act for purposes of the imposition of the documentary stamp tax under said Section 196 is the issuance of the Deed of Absolute Sale ( BIR Ruling No. 097-96, September 9, 1996 ). Accordingly, in the instant case, the documentary stamp tax is due and payable upon the execution of the Deed of Absolute Sale between ALI and the buyers, and not upon the execution of the Contract to Sell. 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)