BIR Ruling [DA-477-06]

August 4, 2006 BIR RULING [DA-477-06] Part I & II, RMC 22-2006; Sec. 4. 106-2 (1), RR 16-2005 Cityland Group of Companies (Cityland Development Corporation, Cityland, Incorporated City And Land, Incorporated Cityplans Incorporated) Attention: Rufina C. Buensuceso Senior Vice-President Gentlemen : This refers to your letter dated May 29, 2006 requesting for clarification from this Office regarding the application of 10% VAT rate to installment sales executed before the effectivity of the new 12% VAT rate on February 1, 2006. It is represented that the Cityland Group of Companies ("Cityland", for brevity), consisting of Cityland Development Corporation, Cityland, Incorporated, City and Land, Incorporated, and Cityplans, Incorporated, is engaged in real estate development; that it sells condominiums and other properties on installment on post-selling and/or pre-selling arrangements; and that in situations where Cityland receives payments that do not exceed twenty-five percent (25%) of the gross selling price on these sales, it considers the sale on installment basis and pays VAT on such basis. Cityland now requests for confirmation from this Office on its opinion that the application of the 10% VAT under Part II of Revenue Memorandum Circular (RMC) No. 22-2006 covers its sales on installment basis, whether such transactions are regarded as pre-selling or post-selling sales, as such, installment payments received on such sales even after February 1, 2006 will still be subject to 10% VAT. In reply, please be informed that Section 4.106-2 (1) of Revenue Regulations (RR) No. 16-2005 provides that: "SEC. 4.106-2. Meaning of the Term "Goods or Properties ". The term "goods or properties" refers to all tangible and intangible objects which are capable of pecuniary estimation and shall include, among others: (1) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; " The above provision must be understood in connection with Parts I and II of RMC 22-2006 which state that: "I. Tax Treatment of Sale of Goods For the sale of goods, a value added tax (VAT) shall be imposed based on the gross sales for a given taxable period. Gross sales shall mean the total sales from consummated transactions whether paid or still payable or upon its accrual. Consummation of the transaction shall mean the delivery and acceptance of the goods with the corresponding issuance of the sales invoice. "II. Application of the 10% or the 12% VAT Consummated sales of goods prior to February 1, 2006 shall be subject to the 10% VAT while sale transactions entered into on or after the aforesaid date shall be subject to 12% VAT. TAcSaC Sale transactions which are entered into prior to February 1, 2006, even if already booked as a sale but delivery of the goods and issuance or dating of the sales invoice took place on or after February 1, 2006 shall be considered as sales on or after February 1, 2006 and shall be subject to the 12% VAT rate." As stated above, Part I of RMC 22-2006 considers transactions as consummated when the sold goods/properties are delivered to and accepted by the buyers and the corresponding sales invoice are issued to them for such goods/properties, regardless of whether or not installment payments on such sales are still subsequently payable. Applied to the present issue, it can be seen that any consummated sale by Cityland to its clients of condominiums and other properties before February 1, 2006 is subject to 10% VAT under Part II of RMC 22-2006. In addition, the 10% VAT rate should also apply to any subsequent payments on or after February 1, 2006 by Cityland's clients who purchase these real properties under installment basis, whether pre or post-selling, as long as the said sales have been booked as consummated sales before February 1, 2006. 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