BIR Ruling [DA-270-06]

April 21, 2006 BIR RULING [DA-270-06] R.R. 2-98, 6-2001 & 7-2003 Development Bank of the Philippines (DBP) Asset Management Department Sen. Gil Puyat Avenue Cor. Makati Avenue Makati City Attention : Mr. Emmanuel A. Lopez First Vice-President Gentlemen : This refers to your letter dated November 14, 2005 requesting an opinion on the letter of Mr. Victor A. Andres stating that he was a vendee of DBP's acquired property consisting of two (2) parcels of residential lots with an aggregate area of 525 sq. m. covered by TCT Nos. 78237 and 78238 of the Registry of Deeds of Las Pias City, located at Lead Street, Pilar Village, Las Pias City, that he bought the said properties from DBP on June 20, 2002 in the aggregate amount of P2,200,000.00; that DBP claimed that it is exempt from withholding tax and furnished Mr. Andres a duly accomplished Withholding Tax Remittance Return (BIR Form No. 1606) wherein it is stated that DBP is exempt from paying the withholding tax due on the above sale transaction and that upon presenting the same to the Revenue District Office concerned for the issuance of the Certificate Authorizing registration (CAR), the said office denied the exemption of DBP. On the other hand, on February 23, 2006, DBP submitted to this Office copy of the following documents: (1) Documentary Stamp Tax Declaration/Return (Form No. 2000) and the Official Receipt (RCBC OR. No. 16974) showing payment of the documentary stamp to in the amount of P33,000.00; and (2) Statement of Income/Sales as of January 31, 2006 showing among others the sale transaction of DBP with Mr. Andres. The said transaction was entered in the books of DBP on June 21, 2002. The amount reflected therein was the book value of the subject properties. In reply, 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. LLjur In any case, no Certificate Authorizing Registration (CAR) shall be issued to file 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 2.57.2(J) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001] On the other hand, under RR No. 7-2003, amending RR No. 2-98, the properties acquired by banks through foreclosure sales are considered as their ordinary assets. Generally, the sale by banks of such properties, particularly known as their ROPOA, 1 is subject to the withholding tax prescribed under RR No. 2-98, as, amended. In the instant case, however, considering that the seller bank is the DBP, an instrumentality of the national government, the sale of its ROPOA to Mr. Andres is exempt from the withholding tax. Under Section 2.57.5(A) of RR No. 2-98, as amended, income payments made to the national government and its instrumentalities, including provincial, city or municipal governments, are exempt from the withholding tax. Such being the case, the CAR covering the subject transaction shall be released immediately without prejudice, however, to the right of this Bureau to make a verification relative to the reporting by DBP of its income from the above sale of its ROPOA. Please be guided accordingly. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Real and Other Properties Owned and Acquired.