BIR Ruling [DA-186-00]

March 30, 2000 BIR RULING [DA-186-00] Secs. 24 (D) (1) & 27 (D) (5); BR Nos. 091-89 & 273-91; DA-186-2000 03-30-2000 C.F. Hernandez Enterprises, Inc. 97 A. Mabini Avenue Tanauan, Batangas Attention: Mr . Cielito F . Hernandez Gentlemen : This refers to your letter dated February 3, 1998 stating that the Southern Tagalog Access Road (STAR) is a flagship project of the government designated to catalyze development of the Calabarzon area; that in the process, cases of expropriation have been initiated by the government in court for the acquisition of the road-right-of-way in which a decision had already been rendered, which is unacceptable to the people particularly to the small barrio folks that the road encompassed a wide span of area forcibly taken by the government; and that a major stumbling block is the capital gains tax the government is posed to collect from the landowners despite the meager amount that they will receive from the government as a result of the expropriation. Based on the foregoing representations, you are now requesting, in effect, for a ruling as to whether or not expropriated land is subject to capital gains tax, documentary stamp tax and transfer tax. In reply, please be informed that Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997 read as follows: "Sec. 24. . . . xxx xxx xxx "(D) Capital gains from sale of real property "(1) In General . The provisions of Section 39(B) notwithstanding, 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 this Code, whichever is higher, is hereby 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 assets, including pacto de retro sales and other forms of conditional sales by individuals including estates and trusts; Provided, that the tax liability, if any, on gains from sales or other disposition of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24(A) or under this subsection, at the option of the taxpayer ." cdlex "Sec. 27. . . . "(D) . . . "(5) Capital Gains Realized from the Sale, Exchange, or Disposition of Lands and/or Buildings . A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings." From the above-quoted provisions of Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997, It is clear that expropriation sale of capital asset, like execution sale, is subject to the 6% capital gains tax regardless of whether the sale was made by a corporation or an individual or regardless of whether any gain or profit was derived therefrom since the aforequoted laws are comprehensive enough to cover not only voluntary sale but also involuntary sale, as in the instant case, as distinguished from the sale of ordinary asset by an individual or by a corporation which under Section 57(B), as implemented by Revenue Regulations No. 2-98, are subject to the creditable withholding tax prescribed thereat at the option of the taxpayer. (BIR Ruling No. 091-89 dated May 2, 1989) Moreover, the owner-seller is liable for the payment of the corresponding documentary stamp tax. However, if the National Government has agreed to shoulder the payment of the documentary stamp tax, then it will be the one directly liable therefor. LibLex Furthermore, it is suggested that your query relative to transfer taxes be directed to the local government unit concerned since it is the government entity tasked with the enforcement and collection of the same. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)