BIR Ruling [DA-227-05]

May 19, 2005 BIR RULING [DA-227-05] One Mckinley Place 6th Floor RFM Corporate Center, Corner Pioneer & Sheridan Streets, Mandaluyong City Attention: Mr. Eleuterio D. Coronel Treasurer Gentlemen : This refers to your letter dated May 18, 2005 requesting for confirmation of your opinion that your company, One McKinley Place, Inc.,formerly Crescent Place Realty Corporation ("Company") be allowed to recognize as creditable input tax for value-added tax ("VAT") purposes the VAT paid on its purchase of parcels of land from Fort Bonifacio Development Corporation ("FBDC"). We quote the pertinent of which, as follows: "Our Company is a corporation duly organized and existing under and by virtue of Philippines laws. It is primarily engaged in the business of Real Estate Development. FBDC is a domestic corporation duly registered and existing under the laws of the Philippines. It owns, develops and sells parcels of land known as the Fort Bonifacio Global City located within Fort Bonifacio, Taguig, Metro Manila. On February 8, 1995, the parcels of land were sold by the National Government to FBDC pursuant to Republic Act No. 7227 and Executive Order No. 40 dated December 8, 1992. FBDC commenced development of the land in May 1996. On September 18, 1996, FBDC registered itself as a VAT taxpayer in accordance with Republic Act No. 7716 which extended the coverage of the VAT system to real property held primarily for sale to customers or held for lease in the ordinary course of trade or business. In October 1996, FBDC started selling lots within the Fort Bonifacio Global City to interest buyers. In 1997, our Company agreed to purchase and FBDC agreed to sell parcels of land; located in the Fort Bonifacio Global City covered by Transfer Certificates of Title ("TCT") No. 29460 with an area of 1,824 square meters, more or less, and TCT No. 29461 with an area of 2,966 square meters, more or less. Each purchase of parcel of land was covered by a separate Deed of Absolute Sale. The parcel of land with an area of 1,824 sq. m. (TCT No. 29460) was purchased for Two Hundred Fifty Two Million Four Hundred Three Thousand Four Hundred Eighty (P252,403,480.00),exclusive of VAT. The parcel of land with an area of 2,966 sq. m. (TCT No. 29461) was purchased for Four Hundred Nine Million Two Hundred Eight Thousand Five Hundred Sixty Pesos (P409,208,560.00),exclusive of VAT. Attached are copies of the Deeds of Absolute Sale (as Annexes "A" and "B"),VAT returns from FBDC as filed in May and July, 1997 (Annexes "C" and "D") and SEC Certificate of Filing of Articles of Incorporation amending the name of the Company (Annex E). Our Company recorded the costs of the parcels of land in its books as Two Hundred Seventy Seven Million Six Hundred Forty Three Thousand Eight Hundred Twenty Seven and 73/100 (P277,643,827.73) for TCT No. 29460 and Four Hundred Fifty Million One Hundred Twenty Nine Thousand Four Hundred Fifteen and 97/100 (P450,129,415.97) for TCT No. 29461, inadvertently including the amount of input VAT paid. Thus, our company failed to separately record the corresponding input VAT its books and in its VAT returns. Attached as Annex "E" is our Company's audited financial statements for the year 2004. As a result our Company was not able to make use of said input VAT as credit against its output VAT." CcTIAH In reply, please be informed that after a scrutiny of the documents submitted, it was found that an output VAT in the total amount of P62,517,347.67 arising from the sale of the aforementioned two parcels of land was declared by FBDC in its monthly VAT returns for the months of April, May and June 1997. Thus, on the part of One McKinley Place only the amount of P62,517,347.67 may be recognized as creditable input tax on its purchase of the two parcels of land subject to the requirements under Section 4.104-5 of Revenue Regulations No. 7-95. Therefore, we hereby confirm your opinion that One McKinley Place is allowed to recognize as creditable input tax the VAT paid on its purchase of the parcels of land from the FBDC which it inadvertently failed to separately record in its books and VAT returns pursuant to Section 110 of the 1997 Tax Code. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group