National Power Corporation

June 13, 2008 BIR RULING [DA-363-08] 85; 24 (D) (1); 196; E.O. 1035; 001-2008 National Power Corporation Quezon Avenue corner BIR Road Diliman, Quezon City Attention: Mr. Ronald F. Perez Project Manager North Luzon Projects Gentlemen : This refers to your letter dated February 12, 2008 requesting for estate tax assessment for a lot to be acquired by the National Power Corporation (NPC) for the San Roque Multi-Purpose Project of the National Power Corporation which is vital in providing electricity to the Northern Luzon grid. It is represented that NPC is in the process of transferring the acquired lot within the said project area under its name; that during the course of the transfer however, the Bureau of Internal Revenue (BIR) of Urdaneta City required the heirs of some of the lots to settle estate tax and other unpaid real estate taxes of all properties, including those not involved in the transaction with NPC, for the transfer of the acquired properties under NPC's name; that such is the case of the three (3) lots (particularly lot nos. 13297-A, 13297-B and 200 with title nos. 63258, 79747 and 80149 respectively, all registered under the names of Sps. Eufemiano Valdez and Gloria Montilla) of the deceased Eufemiano Valdez; that as a backgrounder, Eufemiano Valdez died on March 14, 1990 leaving his wife and children as the legal heirs of all his properties; that the heirs then executed an extra judicial partition of real estate with special power of attorney in May 25, 2000 to partition the abovementioned lots and negotiate the sale to NPC; that however, the heirs could not settle immediately the required estate tax due to the large amount of real estate taxes incurred from all the other properties under the name of Eufemiano Valdez; that in response, NPC exhibited an Opinion issued by the Bureau of Internal Revenue (BIR) regarding a land which was situated in NPC's Caliraya-Botocan-Kalayaan-Build-Operate-Transfer (CBK-BROT) project and requested for a similar application of the Opinion for the abovementioned three (3) lots; that however, BIR advised NPC instead, to just procure a similar Opinion for the three (3) lots before the said application may be given due course; that Section 9 of Executive Order No. 1035 still finds application in this present case; and that tax due shall be assessed on the property being acquired by the government. In reply, please be informed that the law in effect at the time of death of the decedent was Section 100 of the Tax Code of 1977 (now Section 85 of the Tax Code of 1997, as amended by Republic Act No. 9337) which provided that: "Sec. 100. Gross Estate. The value of the gross estate of the decedent shall be determined by including the value at the time death of all property, real or personal, tangible or intangible, wherever situated: . . ." Presently, Section 85 of the current version of the NIRC is virtually identical to the abovementioned provision. As such, the determination of what constitutes the gross estate of decedents subject to estate tax is the same now as it was at the time of death of the lot owners in the present case (2000). For purposes of determining the estate tax liability of a decedent's estate, the gross estate of the latter must first be ascertained and this includes all real property owned by the decedent, real or personal, tangible or intangible, wherever situated. In the present case, the lot which will be acquired by NPC is included among the mass of properties that form part of the gross estate of Eufemiano Valdez. However, it appears that the estate tax due on the real properties of the deceased has not yet been paid and that this is now preventing the transfer of the abovementioned lot to NPC for the operation of the San Roque Multi-Purpose Project. In this regard, Section 9 (b) of E.O. 1035 states that: Sec. 9. Assessment of Taxes Due. The Bureau of Internal Revenue and the respective Provincial/City/Municipal Treasurers shall assess the following taxes, where applicable, on the property being acquired . . . (b) Estate tax due on the portion of the estate of a deceased owner to be acquired by the government and; xxx xxx xxx Such assessment shall be made and transmitted to the government implementing agency/instrumentality concerned within one (1) week from the submission of the complete requirements." The purpose behind E.O. 1035 is to expedite the transfer of private property to the government for infrastructure and development projects. By expediting the processes surrounding such transfers, the government ensures that its public projects will not be hampered by unnecessary delays and obstacles that would prevent the people from benefiting from these projects. The present case is well within the contemplation of the foregoing provision. Section 9 (b) of E.O. 1035 clearly mandates that upon the NPC's submission of the complete requirements, the BIR should submit the estate tax assessment on property to be acquired within one week from such submission. In the present case, the fact that the subject lot is a part of the estate of Eufemiano Valdez that have yet to be subjected to estate tax, should not prevent the assessment of said lot in order to facilitate its transfer to NPC. To do otherwise would certainly be violative of the clear intent of E.O. 1035 to prioritize the assessment of estate taxes if such prove a hindrance to the proper implementation of government projects. It must be stressed, however, that the priority given for the assessment of estate taxes on the abovementioned lot does not exempt the transfer of the same from the imposable taxes under the same Tax Code of 1997, as amended. Thus, the transfer of the said lot to NPC shall be subject to capital gains tax and documentary stamp tax under Sections 24 (D) (1) and 196, respectively, of the same Tax Code. Accordingly, this Office holds that subject lot should be assessed for estate tax separately, but the heirs should likewise be assessed on the remainder of the gross estate of Eufemiano Valdez which have not been subjected to estate tax. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service