BIR Ruling [DA-244-02]

December 18, 2002 BIR RULING [DA-244-02] Sec. 35 Proc. No. 50, Section 196, 1997 Tax Code BIR Ruling No. 141-98 Privatization and Management Office 104 Gamboa Street, Legaspi Village Makati City, Metro Manila Attention: Atty. Dinah M. Dela Pea Legal Counsel Gentlemen : This refers to your letter dated July 13, 2001 requesting for a certification to the effect that the Privatization and Management Office, (formerly the Asset Privatization Trust) is exempt from the payment of the Capital Gains Tax and Documentary Stamp Tax pursuant to Section 35 of Proclamation No. 50 and Section 196 of the 1997 Tax Code. It is represented that the Asset Privatization Trust (APT) was created under the administration of the President Corazon C. Aquino pursuant to Proclamation No. 50, as amended, to promote the Government's policy of privatization, through an orderly, coordinated and efficient program for the prompt disposition of the large number of non-performing assets of government financial institutions and certain government owned and controlled corporations in the shortest possible time and thus move the country towards national recovery; that the corporate term of the APT expired last December 31, 2000 pursuant to R.A. No. 8758 dated December 28, 1999; that the powers, functions, duties, assets and liabilities of the APT devolved upon the National Government and were transferred to the Privatization and Management Office (PMO) by virtue of Executive Order No. 323 dated December 6, 2000; and that since the Government is deemed the owner of the non-performing assets to be disposed of, the same should be exempt from the imposition of the capital gains tax and the documentary stamp tax. In reply, please be informed that the transfer of the non-performing assets of government financial institutions and certain government owned and controlled corporations is in line with the privatization program contemplated in Article 1, Section 1 of Proclamation No. 50 which states: "SEC. 1. Statement of Policy . It shall be the policy of the State to promote privatization through an orderly coordinated and efficient program for the prompt disposition of the large number of non-performing assets of the government financial institutions, and certain government owned and controlled corporations which have been found unnecessary or inappropriate for the government sector to maintain." Consequently, pursuant to the tax exemption clause under Proclamation No. 50, reading: "SEC. 35. Exemption from Taxes, Fees, and Other Charges . The provisions of any law to the contrary notwithstanding, the Trust as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and/or from the Trust to a private acquisitor or buyer imposed by the National Government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps tax, registration fees and the like: Provided, that in case the said government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, charges, imposts, and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Trust or the corporations held by the Trust. The sale or transfer of such corporations or assets shall not be enjoined or hindered by the existence of any liens by way of taxes, charges or other assessments in favor of the government at the time of sale or transfer: Provided, that the proceeds from such sale or transfer shall be subject to a tax lien and first be applied to satisfy such obligations secured by such liens." (Emphasis ours) this Office confirms your opinion that the disposition of these non-performing assets by the Privatization and Management Office, (formerly the Asset Privatization Trust) is exempt from the payment of the capital gains tax. However, in a "block sale" of real and personal properties, only the consideration attributed to the real property shall be subject to the documentary stamp tax under Section 196 of the 1997 Tax Code. (BIR Ruling No. 141-98 dated September 29, 1998) Further, whenever one party to the taxable document enjoys exemption from the documentary stamp tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax pursuant to Section 173 of the same Code. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group