BIR Ruling [DA-310-06]

May 10, 2006 BIR RULING [DA-310-06] 60 (B); DA 490-04 SGV & Co 6760 Ayala Avenue Makati City Attention: Atty. Cirilo P. Noel Vice-Chairman & Deputy Managing Partner Gentlemen : This refers to your letter dated April 17, 2006 stating that SGV Provident Fund (SGVPF) is a duly qualified retirement benefit plan with Bank of the Philippine Islands (BPI), as trustee; that on August 12, 1996, SGVPF, in furtherance of its purpose and objectives for the benefit of its members, entered into a Memorandum of Agreement (MOA) with Kuok Philippine Properties, Inc. (KKPI)/KKPI Realty Corporation (KRC) whereby SGVPF contributed two (2) parcels of land it holds as capital assets for the re-development of the SGV Development Center into a high-rise residential tower condominium known as "The Shang Grand Tower Project" (Project); that upon completion of the Project, SGVPF was allocated 45 units and 85 parking lots in the Project by way of a return on its investment/contribution in the said Project; and that said units and parking lots have been booked as "Investments" by SGVPF. In connection therewith, you now request confirmation of your opinion that the sale by SGVPF of the allocated units and parking lots of "The Shang Grand Tower" is exempt from income tax/capital gains tax/withholding tax pursuant to Section 60(B) of the Tax Code of 1997 and from value-added tax (VAT) pursuant to Section 109(P) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, as implemented by Section 4.109-1(B)(1)(p) of Revenue Regulations No. 16-2005. In reply thereto, please be informed that Section 60(B) of the Tax Code of 1997 provides that "Sec 60(B) Exception . The tax imposed by Title II shall not apply to employees' trust which forms part of a pension, stock bonus, or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees. . ." Considering that SGVPF is an employees' trust fund established under then R.A. No. 4917 for the exclusive benefit of all the employees and the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the members and their beneficiaries, this Office holds that its investments remain exempt from income tax and consequently from withholding tax pursuant to Section 60(B) of the Tax Code of 1997. Accordingly, any income derived by SGVPF from the sale of the allocated units and parking lots of the Project is exempt from income tax, capital gains tax and withholding tax. (BIR Ruling No. DA673-99 dated December 12, 1999) On the other hand, Section 109(P) of the Tax Code of 1997, as amended by R.A. No. 9337, provides that "Sec. 109. Exempt Transactions . Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: SaCIAE xxx xxx xxx (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992 and other related laws, residential lot valued at One million five hundred thousand pesos (1,500,000) and below, house and lot and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted as their present values using the Consumer Price Index, as published by the National Statistics Office (NSO); xxx xxx xxx" Since the allocated units/parking lots are held by SGVPF as capital assets and are not primarily held for sale to customers or held for lease in the ordinary course of trade or business of SGVPF, the sale thereof by SGVPF is exempt from VAT pursuant to Section 109(P) of the Tax Code of 1997, as amended by R.A. No. 9337, as implemented by Section 4.108-1(B)(1)(p) of Revenue Regulations No. 16-2005. WHEREFORE, in view of the foregoing , this Office holds that 1. The sale by SGVPF of the allocated units/parking lots is not subject to income tax and capital gains tax/creditable withholding tax; 2. Since the allocated units/parking lots are classified as capital assets, the sale thereof by SGVPF is not subject to VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service