BIR Ruling [DA-477-98]

November 4, 1998 BIR RULING [DA-477-98] Fritz International Philippines, Inc. Unit 506 Metro Star Building 1007 Metropolitan Avenue Makati City Attention: Ms . Austria P . Suson Accountant Gentlemen : This refers to your letter dated June 2, 1998 stating that a Contract to Sell involving a parcel of land located at Lot No. 5, Malabon, Metro Manila containing an area of 832 square meters and covered by TCT No. M-8403 was executed on November 25, 1996 between Republic Dynamics Corporation/CAWI Dynamics, as the vendors and Messrs. Johnson K. Tan and Wilson K. Tan, as the vendees, for and in consideration of P8,736,000.00 based on P10,500.00 per square meter; that said amount is payable by the vendees as follows: initial payment of P1,747,200.00 upon signing of the contract; and the balance of P6,988,800.00 to pay in full on January 25, 1997; that this amount had been fully paid by the vendees on January 25, 1997; that pursuant to Revenue Regulations No. 12-94, as amended by Revenue Regulations No. 2-98, implementing Section 50(b) of the Tax Code, as amended [now Section 57(B) of the Tax Code of 1997], the sale, exchange or transfer of real property whether held as capital or ordinary asset by Republic Dynamics Corporation is subject to the 7.5% expanded withholding tax or a total amount of P655,200.00; that Republic Dynamics Corporation has reported the corresponding sales last fiscal year ending June 30, 1997 and paid the corresponding income tax which amounted to P1,759,04.00 which amount is more than the 7.5% expanded withholding tax supposedly to be withheld by the vendees pursuant to said Regulations; that as of this date, the Deed of Absolute Sale has not yet been executed; that the management on sale of lots is handled by different company Conglomerate Securities and Financing Corporation (CSFC) and the administrative management is handled by Fritz International Phils., Inc. (FIPI) effective January, 1997; and that the parties are now working for the execution of the Deed of Absolute Sale and the transfer of the title to the said real estate in the name of the vendees. Based on the foregoing representations, you now request for a ruling that the reported net income of Republic Dynamics Corporation in the amount of P5,025,846.00 from the sale of its real property or which the amount of P1,759,046.00 has been paid as income has which is more than 7.5% of the amount required to be withheld or P655,200.00 be deemed substantial compliance with the withholding tax requirements and therefore not subject to the corresponding penalties and interest; and that the subsequent issuance of the Certificate Authorizing Registration (CAR) [now Tax Clearance Certificate (TCL)] by the RDO after executing the Deed of Absolute Sale, is proper. In reply, please be informed that under Sections 248 and 249 both of the Tax Code of 1997, the imposition of penalties and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the State on time. (Jamora vs. Meer, 74 Phil. 22) Such being the case, the failure on the part of Messrs. Johnson K. Tan and Wilson K. Tan to withhold and remit the amount of P655,200.00 representing the 7.5% creditable withholding tax relative to the sale of the aforementioned parcel of land from Republic Dynamics Corporation shall be subject to the 25% penalties and 20% interest as imposed under Sections 248(A)(1) and 249 both of the Tax Code of 1997. Finally, this serves as an authority for the RDO concerned to issue the corresponding Certificate Authorizing Registration (CAR) [now Tax Clearance Certificate (TCL) only after the payment of the corresponding penalties and interest by the above-mentioned buyers. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)