BIR Ruling [DA-376-03]

October 20, 2003 BIR RULING [DA-376-03] R.A. 7227; 027-2000/6-28-00 Megaworld Corporation 28/F the World Centre 330 Sen. Gil Puyat Avenue Makati City Attention: Mr. Francisco C. Canuto Treasurer Gentlemen : This refers to your letter dated August 28, 2003 requesting for an opinion on whether the proceeds from the sale of the parcels of land located in Villamor Air Base is exempt from Capital Gains Tax (CGT for brevity). The facts, as you represent, are as follows: MEGAWORLD CORPORATION (Megaworld for brevity) is currently negotiating with the Bases Conversion and Development Authority (BCDA for brevity), a 100% government-owned and controlled corporation for the purchase of the latter's parcels of land located in Villamor Air Base, Pasay City. You claim that under Republic Act No. 7227 (RA 7227 for brevity), as amended by Republic Act No. 7917 (RA 7917 for brevity), the proceeds from the sale of properties owned by BCDA is exempt from all forms of taxes and fees. IcAaSD In reply, please be informed that Section 8 of RA 7227, as amended by RA 7917, states that: "SEC. 8. Funding Scheme. The capital of the Conversion Authority shall come from the sales proceeds and/or transfers of certain Metro Manila military camps, including all lands covered by Proclamation No. 423, series of 1957, commonly known as Fort Bonifacio and Villamor (Nichols) Air Base, namely: Camp Area in has. (more or less) xxx xxx xxx 3. Part of Villamor Air Base 35.10 xxx xxx xxx The President is hereby authorized to sell the above lands, in whole or in part, which are hereby declared alienable and disposable, pursuant to the provisions of existing laws and regulations governing sales of government properties, . . . , the President shall authorize the Conversion Authority to dispose of certain areas in Fort Bonifacio and Villamor as the latter so determines. . . . The provisions of law to the contrary notwithstanding, the proceeds of the sale thereof shall not be diminished and, therefor, exempt from all forms of taxes and fees. " (Emphasis ours.) In BIR Ruling No. 027-2000 dated June 28, 2000, the BIR ruled that: "b.1. Sec 8(d) of Republic Act No. 7227, as amended by RA 7917, grants the President the authority to sell in whole or in part, that certain 30.15 hectares as relocation site for families to be affected by circumferential road 5 and radial road 4 construction, which are declared alienable and disposable, pursuant to the provisions of existing laws and regulations governing sale of government properties; and authorizes the Conversion Authority to dispose of certain areas in Fort Bonifacio and Villamor as determined by the latter. Furthermore, the proceeds of the sale shall not be diminished and, therefore, exempt from all forms of taxes and fees pursuant to the same provision of the said law. In view of the foregoing, BCDA is exempt from the creditable withholding tax imposed under Section 57(B) of the Tax Code of 1997, as implemented by Section 2.57.2(J) of Revenue Regulations No. 2-98, or capital gains tax under Section 27(b)(5) of the Tax Code of 1997, whichever is applicable. b.2. BCDA is exempt from the payment of the DST imposed under Section 196 of the Tax Code of 1997. However, pursuant to Section 173 of the Tax Code of 1997 which provides that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Accordingly, FBMCI shall be liable to DST based on the fair market value of FBMCI property or the fair market value of BCDA property as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, of the land BCDA proposes to convey or transfer by way of the swap/exchange to FBMCI, subject of Memorandum of Agreement (MOU) dated December 10, 1998." (Emphasis ours.) In view of the foregoing, this Office rules and so holds that the sale of the properties owned by BCDA to Megaworld is exempt from the creditable withholding tax imposed under Section 57(B) of the Tax Code of 1997, as implemented by Section 2.57.2(J) of Revenue Regulations No. 2-98 or capital gains tax under Section 27(b)(5) of the Tax Code of 1997, whichever is applicable. In addition, BCDA is exempt from the payment of the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, pursuant to Section 173 of the Tax Code of 1997, Megaworld shall be liable to the documentary stamp tax based on the fair market value of the BCDA properties as determined in accordance with Section 6(E) of the Tax Code 1997, whichever is higher. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group