BIR Ruling [DA-165-97]

April 15, 1997 BIR RULING [DA-165-97] Casimiro Development Corporation Real St., Zapote Las Pias, Metro Manila Attention: Mr. Teofilo P. Casimiro President Gentlemen : This refers to your letter dated September 14, 1996 requesting clarification as to the tax base in computing that 1.5% creditable withholding tax of corporations engaged in the sale of real properties pursuant to Revenue Regulations No. 12-94. It is represented that you are a duly accredited member of the Chamber of Real Estate Building Association (CREBA) engaged in real estate business; that you provide low-cost housing under the minimum design standard of the Housing and Land Use Regulatory Board (HLURB) for the benefit of homeless citizens; that you have a housing project known as Casimiro Townhomes located at Las Pias, Metro Manila, Molino, Bacoor, Cavite and Ligas, Bacoor, Cavite; that the typical lot size of the inside unit is thirty-five square meters (35 sq.m.) with a floor area of forty-two square meters (42 sq.m.); that for end units, the typical lot area is sixty-five square meters (65 sq.m.) with the same house area of forty-two square meters (42 sq.m.); that all of these were undertaken under the Row Housing Scheme of BP 220; that these projects have been approved by the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration Nos. 92-09-657 and 93-03-704; that it was issued License to Sell Nos. 92-09-679, 94-11-844 and 93-03-727 coupled with the authority to sell the same at a price ranging from P200,000.00 to P375,000.00 per unit (house and lot). In reply, please be informed that under the foregoing facts, the income payments on the sale of socialized housing at a government-regulated price between P200,000.00 to P375,000.00 per house and lot pursuant to B.P. 220 is subject to the 1.5% creditable withholding tax based on actual consideration received pursuant to Section 1 of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 stating EISCaD "SEC. 1. Section I of Revenue Regulations No. 6-85, as amended, is hereby further amended to read as follows: Section 1. Income payments subject to creditable withholding tax and rates prescribe thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines. xxx xxx xxx (i) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of 1. Real property, other than capital asset, by an individual, estate, trust, trust fund or pension fund or real property, whether held as capital or ordinary asset, by a corporation (a) not registered with the Housing and Land Use Regulatory Board (HLURB) as engaged in Socialized Housing Projects under RA 7279; (b) the selling price of the house and lot or the lot only is not over P500,000.00 and (c) the seller/transferor is habitually engaged in the real estate business one and one-half percent (1.5%); (Emphasis supplied). ECcDAH xxx xxx xxx Although the foregoing facts were not contemplated under Revenue Memorandum Order No. 41-91 as one of the exceptions to the rule that for internal revenue tax purposes, the tax base shall be the actual consideration, fair market value, or zonal value, whichever is higher, the existing conditions in real estate business demands that if a Regulatory Government Agency imposes a price constraint, the tax base in computing the 1.5% creditable income tax under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94 shall be the actual price or consideration or the price authorized by a Regulatory Government Agency. A contrary rule, i.e. doubling the value of the house or lot or using a higher theoretical tax base for withholding tax purposes, is without legal basis and is clearly an unfair imposition to the developer amounting to unjust deprivation of property. (BIR Ruling No. S20-23-97 dated March 26, 1997) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)