BIR Ruling [DA-445-98]

October 5, 1998 BIR RULING [DA-445-98] Confed Properties, Inc. 690-A Quirino Avenue Tambo, Paraaque, Metro Manila Attention: Mr . Bansan C . Choa Chairman Gentlemen : This refers to your letter dated August 29, 1997 stating that your company is a registered domestic corporation duly engaged in the real estate business doing socialized and low cost housing projects; that upon purchase by your client or customers of a house and lot package, an Absolute Deed of Assignment is executed by and between your client, your company, and the Home Development Mutual Fund (Pag-IBIG) which is in the nature of a Contract to Sell; that the said Absolute Deed of Assignment does not vest title upon the vendee but contains certain provisions for the giving of a deed in the future upon compliance with certain conditions, like completion of payment of the purchase price, and that upon full payment thereof, a Deed of Absolute Sale is then executed between the parties. LLcd Based on the foregoing, you now request for a ruling as to when the documentary stamp tax and the expanded withholding tax are payable whether upon execution of the Absolute Deed of Assignment (Contract to Sell) or upon execution of the Deed of Absolute Sale? In reply, please be informed that under Section 163 of Regulations No. 26, or Revised Documentary Stamp Tax Regulations which provides: "SEC. 163. Contract for sale of land . If contract for the sale of land vests title on the land and improvements thereon, it would be subject to taxation as a conveyance. If it does not vest title but contains only certain provisions for the giving of a deed in the future upon compliance with conditions precedent, it is not subject to tax ." (Emphasis supplied) The execution of a Contract to Sell in favor of your client/customer does not vest title upon the vendee. On the other hand, a Deed of Absolute Sale is an evidence of the perfection of a Contract to Sell (BIR Ruling No. 050-96 dated April 11, 1996). The operative act in the perfection/consummation of a Contract of Sale of real property is the execution of the Deed of Absolute Sale. Accordingly, in the instant case, the documentary stamp tax on the sale and the conveyance of real property and the expanded withholding tax are payable upon the execution of the Deed of Absolute Sale (BIR Ruling No. 97-96 dated September 6, 1996). With regard to your payment of expanded withholding taxes upon execution of Contract to Sell), the same can be applied to the expanded withholding tax when you finally execute your Absolute Deed of Sale. Aside, however, the notarial acknowledgments of both deeds are likewise subject to the documentary stamp tax of P15.00 each pursuant to Section 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. LLjur Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)