BIR Ruling [DA-398-00]

November 21, 2000 BIR RULING [DA-398-00] R 2-98 59-99 Empire East Holdings, Inc. Makati Avenue Makati City Attention: Ms . Ma . Theresa W . Callanta-Hoadley Senior Vice President Gentlemen : This refers to your letter dated September 16, 9000 requesting confirmation that the 5% expanded withholding tax rate is the correct tax rate in connection with your purchase of certain parcels of land from Guevent Industrial Development Corporation (Guevent). HTCIcE It is represented that your company, Empire East Land Holdings. Inc. (Empire), a real estate developer. has entered into an agreement with Guevent for the purchase and acquisition by Empire of certain parcels of land located in Libertad St., Mandaluyong City of which Guevent is the true and lawful owner; that said property is described under TCT Nos. 60831, 60832, 60833, 60834, 8560 and 10892 of the Register of Deeds of Mandaluyong City: that Guevent is habitually engaged in the real estate business, being a warehouse and business space lessor for more than ten years already; that in support of said fact, you have attached copies of the following: Guevent's amended Articles of Incorporation showing real estate leasing as one of its primary and secondary business purposes; Income Statements for the years ended March 31, 1998, 1999 and 2000 listing rental income as Guevent's primary source of income; Certificate of Membership from CREBA attesting that Guevent is a bona fide member engaged in the realty business; and copies of local business license which show that Guevent has applied for license as a real estate lessor and is duly authorized to act as such; that you have mutually determined that since the selling price of the realty involved is more than two million pesos (P2,000,000), the applicable expanded creditable withholding tax is five percent (5%) pursuant to Revenue Regulations No. 9-98; that the said regulations, however, seem to imply that the seller/transferor must be registered with HLURB or HUDCC to be considered as habitually engaged in the real estate business; that it is your opinion that the same could not be applicable to Guevent since its primary activity of leasing warehouses and real property for business purposes is not related to housing development which comes under the jurisdiction of HLURB or HUDCC. Hence. this query. In rep]y thereto, please be informed that the pertinent portion of Section 2.57.2 (J) of Revenue Regulations No. 9-98 provides: " Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of Real property, other than capital assets sold by an individual corporation estate, trust, trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following schedule Those which are exempt from a withholding tax at source as prescribed in Sec. 2.57.5 of these regulations Exempt With a selling price of five hundred thousand pesos (P500,000.00) or less 1.5% With a selling price of more than five hundred thousand pesos (P500,000.00) but not more than two million pesos (P2,000.000.00) 3.0% With selling price of more than two million Pesos (P2,000,000.00) 5.0% A seller transferor must show proof of registration with HLURB or HUDCC to be considered as habitually engaged in the real estate business . . ." cAaDCE The above provision has been interpreted in BIR Ruling No. 159-99 dated April 30, 1999. in this wise: "For purposes of these regulations, the term 'habitually engaged in the real estate business' is not limited or restricted only to persons duly registered with the Housing and Land Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating Council (HUDCC). This proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon a showing that he is in fact actually engaged in the said business. For example, a lessor of real properties may not be registered with the HLURB or the HUDCC . Nevertheless, such person is engaged in business as a lessor of real properties, hence, embraced by the proviso 'habitually engaged in the real estate business'." (Emphasis supplied) In view hereof, and considering that the seller/transferor Guevent is habitually engaged in the real estate business as lessor of real properties, this Office is of the opinion and hereby holds that the transaction involving the sale of parcels of land (per TCT Nos. 60831,. 60832, 60833, 60834, 8560 and 10892) by Guevent to Empire is subject to the 5% creditable expanded withholding tax pursuant to Section 2.57.2(J) of Revenue Regulations No. 2-98. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then this ruling shall be deemed null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group