BIR Ruling [DA-315-05]

July 12, 2005 BIR RULING [DA-315-05] Hon. Nestor A. Espenilla, Jr. Deputy Governor Supervision and Examination Sector Head, SPV Steering Committee Bangko Sentral ng Pilipinas A. Mabini St., Malate Manila S i r : This refers to your letter dated May 26, 2005, the pertinent portion of which states: "We refer to the attached letter of Mindanao Development Bank (now merged with Equitable Savings Bank) returning to the Bangko Sentral ng Pilipinas the Certificate of Eligibility (COE) for the sale to individual buyers of real properties located in Cagayan de Oro City which the Bank had acquired through dacion en pago arrangement from Firmacion Development, Inc. Based on the Bank's representation, it appears that the Bureau of Internal Revenue (BIR) Regional Office that has jurisdiction over Cagayan de Oro City considered said properties to be commercial in nature despite their classification as residential based on the Tax Declaration. Revenue Regulation No. 6-2004 which implements the tax exemption and fee privileges of the SPV Act of 2002 defines "single family residential unit" as referring to a building or structure used for residential purposes. Bank records also show that subject properties are residential condominium units. It may be mentioned that the Bank also withdrew a subsequent application for COE covering other properties of Firmacion Development, Inc. that were sold to nine (9) individual borrowers for the same reason. We request the Bureau of Internal Revenue look into the matter to ensure attainment of the objectives of the Act." In reply, please be informed that the determination of the fair market value of real properties pursuant to Section 6(E) of the Tax Code of 1997 is for purposes of any internal revenue tax that may be imposed on real estate transactions However, in any event that the real estate transaction is exempt from any internal revenue tax, such as transfer tax, under the Tax Code or special laws granting the exemption, the classification of real properties is immaterial. Accordingly, in the event that the sale to individual buyers of real properties acquired by Mindanao Development Bank through dacion en pago shall qualify as exempt transaction under Republic Act 9182, the classification of said real properties, whether it be commercial or residential, is immaterial. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group