BIR Ruling [DA-163-04]

April 5, 2004 BIR RULING [DA-163-04] RR 12-94 DA-076-2004 Philippine Investment-Management, Inc. The PHINMA Plaza, 39 Plaza Drive Rockwell Center, Makati City Attention: Atty. Miguel Romualdo T. Sanidad Legal Counsel Gentlemen : This refers to your letter dated November 13, 2003 stating that Philippine Investment-Management (PHINMA), Inc., Bacnotan Consolidated Industries, Inc., Union Cement Corporation, Trans-Asia Oil and Energy Development Corporation, and United Pulp and Paper Company, Inc. (the Buyers) bought a parcel of land located at Rockwell Center, Makati City with an area of 1,704 square meters, more or less, and covered by Transfer Certificate of Title (TCT) No. 213543 of the Registry of Deeds for Makati City from Rockwell Land Corporation (Rockwell for brevity), a corporation engaged in real estate business; that the Deed of Absolute Sale was executed on August 22, 2002 and the consideration thereof amounted to One Hundred Seventy Million Four Hundred Thousand Pesos (P170,400,000.00); that the aforestated property was bought by the Buyers from Rockwell in installments pursuant to a Memorandum of Agreement (MOA) executed on May 2, 1996; that the installments were then paid and creditable taxes were withheld and remitted based on the installments; that more than 25% of the consideration or total selling price was paid in the first installment and the creditable withholding tax due thereon was remitted in September 1996; that as of November 1997, the withholding taxes due on the sale of the above-described property to the Buyers were fully remitted; that Rockwell reported the sale of the land to the Buyers as cash sale in its Income Tax Return (ITR) for its fiscal year ended September 30, 1996; that the sale of the Land is reflected in the documents "Computation of ITR for September 30, 1996" and "Computation of FS and ITR Gross Profit" and given the fact that Rockwell had reported the sale of the land as cash sale and had fully paid the income taxes due thereon in September 1996 and the Buyers withheld and remitted the creditable taxes for the total selling price from September 1996 to November 1997, you now seek for a confirmation of your opinion that there has been compliance with the pertinent revenue regulations on the creditable withholding tax on sale, exchange and transfer of real property. In reply thereto, please be informed that pursuant to Revenue Regulations (RR) No. 12-94, the rule applicable at the time of the transaction, any sale, exchange or transfer of real property whether capital or ordinary asset by a corporation, which is habitually engaged in the real estate business as certified by the Chamber of Real Estate Builders Association, Inc. (CREBA), the National Real Estate Association (NREA) or the Subdivision and Housing Developers Association, Inc. (SHDA), the selling price of which is over P2,000,000.00, shall be subject to a creditable withholding tax of 5%, based on the entire gross selling price or total amount of consideration or its equivalent paid to the seller or the fair market value of the said properties, whichever is higher, pursuant to then Section 6(e) of the 1977 Tax Code, as amended. The aforestated RR covers all types of sale, whether cash sale, sale on installment basis and sale on a deferred-payment basis. The above pronouncement as to the basis of the expanded withholding tax (EWT) was clarified in BIR Ruling No. 019-96, which states that the basis of the withholding tax payment should be the entire gross selling price and not merely on the initial or downpayment made if the first payment in the year of sale exceeded twenty-five percent (25%). A perusal of the above-mentioned ruling revealed that the pronouncement made therein likewise holds true in the instant case, considering that the transaction entered into between Rockwell and the Buyers was categorically considered as a cash sale, there being an initial payment of more than 25% of the consideration or total selling price. Considering that the income from the sale of the land on deferred-payment basis have been correctly reported by Rockwell in the year of sale, and the Buyers have properly remitted the creditable withholding tax, this Office hereby confirms your opinion that no further expanded withholding tax shall be imposed on the Buyers of the aforestated property, inasmuch as the aforesaid deferred-payment sale and the income therefrom were already reported in full by Rockwell in the year of sale and the income taxes thereon for the said year were already paid. However, upon presentation of this Ruling, together with the copy of Contract to Sell, Deed of Absolute Sale, Annual Income Tax Returns and Audited Financial Statement in the year of sale, breakdown of deferred cash sales transactions during the year of sale and proof of payment of documentary stamp tax, the Revenue District Officer concerned shall have to determine whether the correct amount of expanded withholding tax based on the entire gross selling price has been withheld and actually remitted to the BIR. Thereafter, he may issue to the Buyers the Certificate Authorizing Registration (CAR) covering their respective realty in order that the ownership and title thereto may be caused to be recorded and transferred to them. ( BIR Ruling No. DA-172-2003 dated June 2, 2003 ) Furthermore, the Revenue District Office (RDO) having jurisdiction over Rockwell should still determine that income from such sales has in fact been actually paid and fully settled. 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. HAEIac Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group