BIR Ruling [DA-263-05]

June 16, 2005 BIR RULING [DA-263-05] RR 6-2001 & 7-2003 Time of payment of CWT Development Bank of the Philippines (DBP) Asset Management Department Sen. Gil Puyat Avenue Cor. Makati Avenue Makati City Attention: Mr. Renato A. Castillo Senior Vice-President Gentlemen : This refers to your letter dated March 14, 2005 requesting for clarification whether your payment of creditable withholding tax (CWT) on the sale of DBP-acquired assets made on the tenth (10th) day of the month following the date of notarization of the Deed of Absolute Sale is in order. The antecedent facts are as follows: 1. That the acquired property consisting of 190 sq.m. residential lot covered by TCT No. 144520 of the Registry of Deeds of Paraaque City, with building and improvements erected thereon, located at Ina Executive Homes I, Levitown Estate Subdivision, Brgy. Don Bosco, Paraaque City, was subjected to four (4) failed public biddings from year 2000 to 2004; 2. That during the negotiated sale period, Wealth Options Finance Corp. (WOFC) offered to purchase the above property for P777,667.50 (net of 10% discount) and remitted the full amount on September 14 and 22, 2004; 3. That consistent with DBP's existing policy on negotiated sales of its acquired assets, the offer was recommended by the Credit Committee under the Cash Sale Recommendation dated October 4, 2004 which was later approved on October 14, 2004 subject to the conditions, among others, that the vendee shall complete the documentation including the notarization of the transaction within thirty (30) days from receipt of DBP's notice of approval; otherwise, the said approval shall be deemed revoked and the ten percent (10%) of the approved amount shall be forfeited in favor of DBP as liquidated damages; 4. That WOFC signed the Deed of Absolute Sale at the time it was notarized on November 16, 2004; 5. That on November 16, 2004, your representative secured from Revenue District Office (RDO) No. 52, Paraaque City, One Time Transaction (ONETT) computation of CWT at six percent (6%) of the highest value based on the selling price, market value per tax declaration and the zonal valuation. The amount of P63,600.00 was remitted to RDO No. 52 on December 2, 2004; and 6. That sometime in December 2004, WOFC informed your representative that a certain Edgar Dumanog of RDO No. 52 will not issue the Certificate Authorizing Registration or CAR for the above transaction since a corresponding penalty in the amount of P28,666.70 should be imposed for late payment of the CWT; 7. That it is the contention of Mr. Dumanog that payment of the CWT should be reckoned on the date of payment by the vendee (WOFC) of the full consideration and not on the date of notarization of the Deed of Absolute Sale. In reply thereto, please be informed that: As a general rule, if the buyer in a sale of ordinary asset is engaged in trade or business, whether a corporation or otherwise, the following rules shall apply: (i) If the sale is a sale of property on the installment plan (that is, payments in the year of sale do not exceed twenty-five percent (25%) of the selling price),the tax shall be deducted and withheld by the buyer on every installment; (ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is, payments in the year of sale exceed twenty-five percent (25%) of the selling price),the buyer shall withhold the tax based on the gross selling price or fair market value of the property, whichever is higher, on the first installment. In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the creditable withholding tax due on the sale, transfer or exchange of real property other than capital asset has been fully paid. [Section 2.52.2(J) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001] On the other hand, filing of the return for the CWT and payment of the same shall be made within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year which shall be filed on or before January 15 of the following year. [Section 2.58(A)(2)(a) of RR No. 2-98, as amended by RR No. 6-2001] From the foregoing and since under RR No. 7-2003, the properties acquired by banks through foreclosure sales are considered as their ordinary assets, the sale by DBP to WOFC of the aforementioned property shall be subject therefore to the rules and procedure above cited. However, considering the existing policy of DBP in its disposition of its acquired assets through negotiated sales, such that even after tender of the full amount offered as consideration for the purchase of its acquired assets still the same is recommended by the Credit Committee under the Cash Sale Recommendation for approval, and that upon approval of the said Cash Sale Recommendation, the same is still subject to the conditions, among others, that the buyer shall complete the documentation including the notarization of the transaction within thirty (30) days from receipt of DBP's notice of approval; otherwise, the said approval shall be deemed revoked, the withholding of taxes in the sale by DBP of its realties to the buyers, WOFC in this particular case, therefore, shall be made only upon the consummation of the conditions set forth by DBP. This is so because only at the time of the notarization of the Deed of Absolute Sale that it can be considered that DBP has sold its property/ies to the buyer and that it accepted the payment made by the latter. Consequently, the withholding of taxes thereof; shall be made only upon due execution of the Deed of Absolute Sale, meaning after notarization of the same, and in accordance with Section 2.58(A)(2)(a) of RR No. 2-98, as amended by RR No. 6-2001, the payment of the CWT to the BIR should be made on the tenth day after the close of the month when the Deed of Absolute Sale had been notarized. cDICaS Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group