BIR Ruling [DA-436-98]

September 24, 1998 BIR RULING [DA-436-98] Mr. & Mrs. Leonardo Angeles 21 Apollo St., Acropolis Quezon City Dear Mr. & Mrs. Angeles : This refers to your letter dated August 28, 1998 stating that you are presently paying a 4-year installment plan under a Contract to Sell for a condominium unit of 40.8 square meters (Unit 1201) of the Shaw Tower, a building project of City & Land Developers, which is now under construction at Shaw Blvd., Mandaluyong City; that your contract price is One Million Four Hundred Ten Thousand Pesos (P1,410,000.00) (excluding interest) out of which you have already paid One Million Seventeen Thousand Five Hundred Ninety Four Pesos and Ten Centavos (P1,017,594.10) [downpayment plus twenty three (23) months amortization]; that at present, you are assigning your rights under this contract to Mr. & Mrs. Alfredo Yambao because of financial reasons beyond your control; that in consideration of the transfer of rights, Mr. & Mrs. Yambao will pay back to you the payments you already made on the said condominium unit; and that in this regard, the developer, City & Land Developers, requires the payment of capital gains tax of six percent (6%) and documentary stamp tax of one and one-half percent (1.5%). cdt Based on the foregoing representation and documents submitted, you are now requesting, in effect, for a ruling that you are exempted from payment of the capital gains tax and documentary stamp tax on your Assignment of Rights with Assumption of Mortgage in the Contract to Sell in favor of Mr. & Mrs. Alfredo Yambao. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, 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 the Tax Code of 1997, whichever is higher, is 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 asset including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trust. In the instant case, however, your sale in favor the Mr. & Mrs. Alfredo Yambao was not a sale, exchange or disposition of real property classified as capital asset located in the Philippines but rather a sale of right pertaining to such property, hence, not included within the provision of Section 24(D)(1) of the Tax Code of 1997. This is so, considering that in assignments of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the assigned right pertains. Moreover, a Deed of Assignment of Right is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. It is however understood, that the gain derived by the assignor from and as a consequence thereof, is subject to income tax. (BIR Ruling No. 174-90 dated September 10, 1990) Accordingly, the sale or assignment by the Spouses Angeles in favor of the Spouses Yambao of their rights over the said property is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax prescribed under Section 196 of the same Code. The notarial acknowledgment of the deed, however, is subject to the P15.00 DST pursuant to Sec. 188 of the Tax Code of 1997. 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. prcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)