Mr. Alexander S. Lim

June 18, 2007 BIR RULING [DA-331-07] DA 155-05 Mr. Alexander S. Lim Penthouse, Morning Star Center Building 347 Sen. Gil Puyat Avenue Makati City S i r : This refers to your letter dated May 2, 2007 stating that you and your brother, Welling James S. Lim (the Landowners) are the absolute and registered co-owners of a parcel of land containing an area of 4,996 square meters and covered by TCT No. T-30149 issued by the Registry of Deeds for Las Pias City; that on the other hand, University of Perpetual Help Rizal, Inc. (UPHRI), is a private educational corporation organized and existing under the laws of the Philippines with principal office address at Alabang-Zapote Road, Pamplona III, Las Pias City; that on October 16, 2006, a Memorandum of Agreement was executed by the Landowners and UPHRI whereby UPHRI has offered to purchase the above-mentioned property and the Landowners have agreed to sell the said property for and in consideration of P109,912,000.00; that it was likewise agreed that UPHRI shall pay an initial amount of P10,000,000.00 as earnest money which shall form part of the gross purchase price and is non-refundable; that the remaining balance shall be paid within six (6) months from the date of the execution of this Agreement or until April 30, 2007; that on April 24, 2007, a Deed of Absolute Sale was executed by the former in favor of the UPHRI; that the above-mentioned property was never used in business and was left vacant since the time you acquired it in 1992; that in October 2006, you have decided to sell the said lot to UPHRI and allowed UPHRI to use the land in the meantime as their parking lot to augment the parking requirements of the hospital while they are sourcing for funds to purchase the said lot from you within the agreed six months period, although actual sale took place on April 24, 2007; that from October 2006 until April 24, 2007, the UPHRI asphalted the lot and used the same as their parking space; and that the capital gains tax in the amount of P6,594,720.00 and the corresponding documentary stamp tax in the amount of P1,648,680.00 had been paid evidenced by validation receipt dated May 4, 2007. In connection therewith, you now request for confirmation of your opinion that the sale of the above-mentioned parcel of land which is classified as capital asset is subject to the six percent (6%) capital gains tax under Section 24 (D) (1) of the Tax Code of 1997 and to the corresponding documentary stamp tax under Section 196 of the said Code but not subject to the 12% value-added tax (VAT). In reply thereto, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides that a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or under this Subsection, at the option of the taxpayer. Based on your representation, the income derived from the sale of the above-mentioned property which was never intended to be sold or leased in the ordinary course of business nor classified as property of a kind which would properly be included in the inventory if on hand at the close of the taxable year nor held by the taxpayer primarily for sale to customers in the ordinary course of trade or business, is not subject to the expanded withholding tax under Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended, but only to the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997 and to the documentary stamp tax under Section 196 of the said Code, based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher. Considering that the above-mentioned property is owned by individuals and does not fall under any of the assets enumerated under Sections 39 (A) (1) of the Tax Code of 1997 and Section 2 (b) of Revenue Regulations No. 7-2003, the same should be properly classified as capital asset for tax purposes. ( BIR Ruling No. DA060-03 dated March 3, 2003 ) ADSTCa Accordingly, we hereby confirm your opinion that the sale of the above-mentioned parcel of land, which does not fall under any of the assets enumerated under Sections 39 (A) (1) of the Tax Code of 1997 and 2 (b) of Revenue Regulations No. 7-2003, is considered as capital asset and is subject: 1. To capital gains tax of 6% pursuant to Section 24 (D) (1) of the Tax Code of 1997; 2. To documentary stamp tax at the rate of P15.00 for each P1,000 or fractional part thereof in excess of P1,000, or 1.5% of the consideration or fair market value of the properties, whichever is higher, pursuant to Section 196 of the said Code; and 3. However, the sale is not subject to the 12% VAT pursuant to Section 4.109-1 (p) of Revenue Regulations No. 16-2005 inasmuch as said property is not held primarily for sale or lease to customers nor used in the ordinary course of their primary trade or business. 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. DIETcH Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue