BIR Ruling [DA-171-00]

March 22, 2000 BIR RULING [DA-171-00] 24 (D) (1) 174-90 DA-171-2000 Ms. Ma. Elena A. Sanchez # 132 Moscow corner Sydney Sts., Green Park Village, Manggahan Pasig City M a d a m : This refers to your letter dated June 1, 1999 which was endorsed to this Office by the Regional Director, Revenue Region No. 7, Quezon City for a ruling relative to your request for exemption from the payment of capital gains tax and documentary stamp tax on the assignment by Ms. Violeta S. Villanueva of her 50% rights and interest in the condominium unit you bought with her on installment basis from Cityland Development Corporation. It is represented that on September 26, 1995, you and Ms. Violeta Villanueva and CDC entered and executed a Contract to Sell whereby you and Ms. Violeta Villanueva bought on installment basis a condominium unit at City Square Pioneer Condominium located in Pioneer St., Mandaluyong City from CDC for Five Hundred Sixty Two Thousand Six Hundred Ten Pesos and Fifty Centavos (P562,610.50); that the terms of the said Contract are: a) down payment of Two Hundred Thousand Pesos (P200,000.00) upon signing of the Contract; and b) the balance inclusive of 12% interest per annum to be amortized for forty-eight (48) months from October 26, 1993 at Nine Thousand Five Hundred Forty Eight Pesos (P9,548.00) per month; and that on September 23, 1999 or prior to the full payment of the said condominium unit, and while ownership of the same still remains with CDC, you and Ms. Violeta Villanueva with the marital consent of her husband, made and executed a Deed of Assignment with Assumption of Obligation wherein, Ms. Violeta Villanueva, as assignor, assigned and transferred her 50% rights and interest over the aforesaid condominium unit in your favor, hence this request. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital asset, including pacto de retro sales and other forms of conditional sales, by individuals, including estate and trust. A close perusal of the foregoing provision of Section 24(D)(1) of the Tax Code of 1997, would reveal that only capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines classified as capital asset, including pacto de retro sales and other forms of conditional sales by individuals, including estates and trusts are subject to the capital gains tax imposed thereunder. Hence, assignment of rights over real property is not included within the purview of Section 24(D)(1) of the Tax Code of 1997 considering that in assignment of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right that what the assignor had in the property to which the rights assigned pertain. (BIR Ruling No. 174-92 dated September 10, 1992) However, any gain realized by the assignor/transferor from the disposition of her rights over the said property, as determined in accordance with Section 40(A) and (B)(4) of the Tax Code of 1997, is subject to ordinary income tax which must be reported in her 1999 income tax return pursuant to Section 32(a)(3) of the same Code. (BIR Ruling No. DA-543-99 dated September 21, 1999) Moreover, the Deed of Assignment in this case, is not a Deed of Sale as contemplated under Section 196 of the Tax Code of 1997, since what is being conveyed by the assignor is not the property itself but her rights pertaining to such property, hence, not likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. The notarial acknowledgment of the deed however, is subject to the P15.00 documentary stamp tax pursuant to Sec. 188 of the Tax Code of 1997. (BIR Ruling No. 174-90 dated September 10, 1990) Furthermore, the said assignment of rights is also not subject to the donor's tax imposed under Section 84 of the Tax Code of 1997, since there is no donative intent on the part of the assignor in assigning her right over the said condominium unit in your favor. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)