BIR Ruling [DA-175-99]

March 22, 1999 BIR RULING [DA-175-99] Picazo Buyco Tan Fider & Santos Law Offices 8th Floor, Singapore Airlines Building 138 H. V. dela Costa Streets, Salcedo Village Makati City Attention: Atty . Gemma M . Santos and Atty . Peter Donnely A . Barot Gentlemen : This refers to your letter dated October 28, 1998 stating that your client, Roxas & Company, Inc., a corporation organized and existing under Philippine law, is the owner of parcels of land located in Nasugbu, Batangas; that they are part of properties originally acquired by the Roxas family; that a sociedad mercantil regular, Viuda e Hijo de Pedro P. Roxas, formed in 1914, held the properties; that sometime in 1930, the Roxas family, established a partnership known as Roxas y Compania, Limitada and transferred the lands to the partnership; that in 1981, Roxas y Compania, Limitada was converted into a corporation, Roxas & Company, Inc., and the latter took over the business, properties, assets, rights, privileges, debts and liabilities of the partnership, including the lands previously owned by the Roxas family; that pursuant to agrarian reform laws, substantial portions of the lands were acquired by the Philippine Government; that the remaining portions, i.e., those exempt from or not covered by agrarian reform laws, and residential lands, constitute the subject properties, and remain with Roxas & Company, Inc.; that up to the present, the said properties remain idle or not devoted to any profitable use; that the Roxas family, the Viuda e Hijo de Pedro P. Roxas, Roxas Compania, Limitada and Roxas & Company, Inc. have not actually used the said properties in their businesses; and that some of the residential lands are already occupied by squatters. prcd Based on the foregoing, you now request for a ruling that the said parcels of land are capital assets of Roxas & Company, Inc. and that the sale thereof is subject to the 6% final capital gains tax under Section 27(D)(5) of the Tax Code of 1997. In reply, please be informed that under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is imposed on the gains presumed to have been realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a corporation which are treated as capital assets based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. From the foregoing provision of the Tax Code of 1997, it is clear that the said properties are being held by Roxas & Company, Inc. as capital assets since: 1) it is not used in its business; 2) it does not form part of its inventory; 3) it is not held for speculative purposes; and 4) it is not subject to depreciation. Accordingly, since the Roxas family, the Viuda e Hijo de Pedro P. Roxas, Roxas Compania, Limitada and Roxas & Company, Inc. have not actually used the said properties in their businesses, the same are considered as capital assets and the sale thereof shall be subject to the new capital gains tax rate of six percent (6%) based on the gross selling price or the fair market value at the time of sale, whichever is higher. The six percent (6%) capital gains tax is a final tax and the gains presumed to be realized from the sale thereof is no longer includible in the other items of gross income in computing the taxable income which is subject to the normal corporate tax rate. (BIR Ruling No. 133-98 dated September 15, 1998) 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. dctai Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)