BIR Ruling [DA-167-02]

September 17, 2002 BIR RULING [DA-167-02] 27 (C); (D) (5); 096-98 Viron Transportation Company, Inc. 697 EDSA, Cubao Quezon City Attention: Atty. Vincent A. Rondaris Assistant GM and Vice-President Gentlemen : This refers to your letter dated May 4, 2002 requesting on behalf of Viron Transportation Company, Inc. ("Viron", for brevity), for a confirmation of your opinion that since GSIS is exempt from the payment of capital gains tax, Viron, on the other hand, as buyer of two (2) parcels of land being sold by GSIS, is also exempt from the said tax. It is represented that your company is desirous of purchasing real property located along Regalado Avenue corner Dart & Consul Streets, Quezon City covered by Transfer Certificates of Title Nos. RT-33069 and RT-33070 owned by the GSIS; that one of the considerations for buying said properties is that GSIS is exempt from the payment of capital gains tax, it being particularly enumerated as one of the privileges enjoyed by GSIS under the law; and that since you are the buyer of said properties, the burden of paying the capital gains tax does not rest upon you. In reply, please be informed that in cases of sale, exchange or disposition of lands and/or buildings owned by a corporation, which are not actually used in its business and are treated as capital assets, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the said transactions, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the 1997 Tax Code, whichever is higher, of such lands and/or buildings. ( Section 27(D)(5), 1997 Tax Code ) However, when the lands and/or buildings subject of sale, exchange or disposition are actually used in the business of a corporation and are classified as ordinary assets, the transaction is subject to ordinary income, and not capital gains tax, which includes any gain from the sale or exchange of property which is not a capital asset as defined in Section 39(A)(1) of the same Code. ( Section 22(Z), 1997 Tax Code ) It is clear from the foregoing provisions, that in cases of sale, exchange or disposition by a corporation of lands and/or buildings classified as capital assets/ordinary assets, the burden of paying the 6% capital gains tax/creditable withholding tax rests upon the seller/transferor because the latter is the one who realized the capital gains/ordinary income subject to tax, unless there is a stipulation to the contrary. In the instant case, GSIS is the one directly liable to pay the corresponding taxes due on the sale transaction, it being the registered owner of the subject properties. However, Section 27(C) of the 1997 Tax Code provides, among others, that GSIS is not liable to pay such rate of tax as are imposed on other domestic corporations which necessarily includes the payment of capital gains tax. Accordingly, the burden of paying the capital gains tax rests upon GSIS which is exempt from the payment of such tax and therefore, Viron, being the buyer, has no obligation to pay the capital gains tax. However, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the documentary stamp tax imposed under Section 196 of the 1997 Tax Code, by the person making, signing, issuing, accepting, or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines: Provided, That whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. ( Sec. 173, 1997 Tax Code ) Thus, since Viron is not exempt from the payment of any tax arising from the above-mentioned transaction, it shall be liable to pay the documentary stamp tax on deeds of sale and conveyances of real property being imposed under Section 196 of the 1997 Tax Code. 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. CTEaDc Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group