BIR Ruling [DA-164-98]

April 22, 1998 BIR RULING [DA-164-98] Alabang Hills Village Association, Inc. Clubhouse, Don Jesus Blvd. Alabang Hills Village, Alabang Muntinlupa, Metro Manila Attention: Mr . Rodolfo R . Matienzo President Gentlemen : This refers to your letter dated July 30, 1997 requesting for confirmation of your opinion on the tax implications of the proposed transfer of certain properties by the Alabang Development Corporation (ADC) to the Alabang Hills Village Association, Inc. (AHVA), to wit : LLcd 1. That AHVA shall not be subject to any internal revenue tax upon the transfer to it by ADC of the following properties : a. 7,000 sq. m. residential lot; b. 5,000 sq. m. lot for the community centre; c. road lots; d. two (2) main boulevards, Don Jesus and Don Manolo, once these are reconveyed by the City to ADC; e. parks and playgrounds in Phases I and III; 2. That the subsequent sale by AHVA of the 7,000 sq.m residential lot transferred to it by ADC shall have the following tax implications : a. Gain realized from the sale shall form part of the taxable income of AHVA subject to the 35% income tax; b. The same shall be subject to 7.5% creditable expanded withholding tax based on the gross selling price pursuant to Section 1 (j)(4) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94; and c. It shall also be exempt from the 10% VAT pursuant to Sec. 4.103-1(B)(w)(1) of Rev. Regs. No. 7-95, as amended by Rev. Regs. No. 6-97 It is represented that AHVA is a non-stock, non-profit corporation duly organized and existing under the laws of the Philippines with principal offices at the Clubhouse, Don Jesus Blvd., Alabang Hills, Alabang, Muntinlupa City; that it is the duly organized association of the homeowners of Alabang Hills Village; that ADC, the owner/developer of the Alabang Hills Village, is a corporation organized and existing under the laws of the Philippines with the business address at Alabang Hills, c/o Mr. Jesus Cabarrus, Jr., Baguio St., Alabang Hills Village, Muntinlupa City; that the Subdivision is divided into three (3) areas, namely : Phases I, II and III; that under ADC's proposal, the community property or open space in Phase II of the Subdivision with a total area of 19,000 sq. m., and titled in ADC's name, shall be subdivided as follows : 1. 14,000 sq. m. to be reclassified into two (2) residential lots : a. 7,000 sq. m. to be retained by ADC; and b. 7,000 sq. m. to be transferred to AHVA; 2. 5,000 sq. m. to be transferred to AHVA to be used for the community centre; that ADC also proposes to transfer to AHVA the title to the common areas consisting of the following : 1. road lots which titles are still in ADC's name; 2. two (2) main boulevards, Don Jesus and Don Manolo, which have earlier been donated by ADC to Muntinlupa City, once these are reconveyed by the City to ADC; and 3. parks and playgrounds in Phases I and III of the Subdivision; that the transfer of the above-mentioned properties by ADC to AHVA shall be without monetary consideration; that as developer of the said properties, ADC has already included the developmental cost and value of the said common areas and open space in the price of the residential lots; and that AHVA plans to subsequently sell the 7,000 sq. m. residential lot transferred to it by ADC. In reply, please be informed as follows : 1. Since the above-mentioned transfer of the subject real properties from ADC to AHVA is without consideration and is not in connection with a sale made to AHVA, no income was generated by ADC, and a fortiori, no creditable withholding tax is payable and collectible. Thus, the aforesaid Deed of Conveyance is not subject to any creditable withholding tax under Sec. 57(B), in relation to Sec. 27 (D)(5) of the Tax Code of 1997. Moreover, Sec. 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that "conveyances of realty not in connection with a sale to trustees or other persons without consideration are not taxable." Thus, it is not subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997. However, the acknowledgment to the said deed of conveyance is subject to the documentary stamp tax of P15.00 on certification pursuant to Sec. 188 of the Tax Code of 1997. 2. If AHVA is going to sell the aforesaid 7,000 sq. m. real property, the said sale shall be subject to the 6% tax imposed under Sec. 27 (D)(5) of the Tax Code of 1997. On the other hand, Sec. 105 of the Tax Code of 1997, any person who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, or engages in similar transactions and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Section 106 to 108 of the same Code. Such being the case, and since AHVA is not engaged in the business of selling real properties, its sale of the aforesaid 7,000 sq. m. residential lot is not subject to VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation the facts turned out to be different, then this ruling shall not apply and/or considered null and void. (BIR Ruling No. 176-91 dated September 10, 1991 and BIR Ruling No. 540-88 dated November 15, 1988) LLcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)