Union Bank of the Philippines Proposed Deed of Assignment of Credit and Mortgage Right

July 18, 1996 BIR RULING [DA-252-96] MEMORANDUM FOR : The Commissioner RE : Union Bank of the Philippines Proposed Deed of Assignment of Credit and Mortgage Right The observations contained in a Memorandum for the Commissioner dated June 27, 1996 of Teresita M. Angeles to the effect that the above-captioned proposed assignment of mortgage and credit rights should be subjected to creditable withholding tax as there exists a sale of real property classified as ordinary or capital asset by a corporation in accordance with Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 implementing Section 50(b) of the Tax Code, as amended, based on the selling price, citing Sec. 3 of Revenue Regulations No. 4-86, which adopted the provisions of the Civil Code definition of real property interest and/or real properties, which includes, among others, contracts for public works, and servitudes and other real rights over immovable property, including real estate mortgages, possessory retentions, antichresis, usufruct and lease of real property, in support thereof; and the fact that since there is a consideration of P20 million for the aforesaid proposed assignment, a sale of real property therefore exists, is in the opinion of this Office, without legal basis for the following reasons: casia 1. Only sales, exchanges of transfers of real properties are subject to the creditable withholding tax imposed under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 1-90 and Revenue Regulations No. 12-94 implementing Section 50(b) of the Tax Code, as amended; hence, assignments of rights in real property, as in the instant case, are not included within the purview of the said regulations. (BIR Ruling No. 174-90 dated September 10, 1990). 2. In the instant case, the assignor, Union Bank of the Philippines (UP), after foreclosing the mortgaged real properties of Sammy International Trading, Inc. (SITI), which defaulted in the payment of its loan with UP, was enjoined from consolidating its Title thereto on a complaint filed by SITI and mortgagors against it. Thus, in assigning its credit and mortgage rights in favor of Amada Corporation (AC) for and in consideration of P20 million as embodied in the aforesaid proposed Deed of Assignment of Credit and Mortgage Rights, UP, which was enjoined from consolidating its Title in the foreclosed real properties of SITI, was merely assigning whatever rights it had in said foreclosed real properties of SITI, was merely assigning whatever rights it had in said foreclosed real properties of SITI, considering that in assignments of rights the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertains. (BIR Ruling No. 174-90 dated September 10, 1990); and 3. A Deed of Assignment of rights in real property is not a Deed of Sale of real property because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. (BIR Ruling No. 174-90 dated September 10, 1990) In view thereof, it is believed that the draft ruling on the matter is in order and therefore should be given due course. cdta Respectfully submitted: ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head, Revenue Executive Assistant (Legal Service)