BIR Ruling [DA-564-99]

September 29, 1999 BIR RULING [DA-564-99] Golden Donuts, Inc. GDI Building corner Reliance & Sheridan Sts. Mandaluyong City Attention: Mr . Joselito M . Atas Administrative Services Manager Gentlemen : This refers to your letter dated April 30, 1999 stating that Golden Donuts, Inc. (GDI), Eastway Bakeries, Inc. (Eastway) and North Area Bakeries, Inc. (North Area) are all corporations organized and existing under the laws of the Republic of the Philippines; that GDI is the holder of an exclusive master franchise to produce, market, and sell food products under the trade name "Dunkin Donuts" in the Philippines; that GDI directly operates several Dunkin Donuts store outlets in Metro Manila and has, at the same time, granted sub-franchise licenses and dealerships to, among others, Eastway and North Area; that to rationalize the operations of the various Dunkin Donuts outlets in Metro Manila, GDI decided to sell all of its store outlets east of Manila to Eastway and those to north of Manila to North Area and to continue to operate only the store outlets located south and west of Manila; that on March 17, 1998, GDI executed a Deed of Assignment in favor of Eastway over all the movable properties consisting of store furniture, kitchen and office equipment and other personal properties which are found in the following outlets: a. Baclaran - Edsa LRT b. Kabihasnan c. Recto 2 - Masagana, Dapitan and Rectomall d. Recto 1 - Masangkay, Blumentritt and Dimasalang e. Tutuban - Ilaya f. Sucat - Southland, Uniwide Las Pias, and JAKA g. Southmall 1 and Southmall 2 h. Malate i. Robinsons and Adriatico j. Plaza Miranda that GDI also executed a Deed of Assignment dated March 17, 1998 in favor of North Area over all the movable properties consisting of store furniture, kitchen and equipment and other personal properties found in the following outlets: a. SMNE b. Muoz - Megastate c. Del Monte - Mayon, Sienna and Sto. Domingo d. West Avenue - D & E e. Royal Arcade - UE Kalookan, Gagalangin, Uniwide Kalookan and MCU that the store premises themselves were not part of the Deeds of Assignment since these were being held by GDI under existing lease agreements with third-party lessors; and that title to any improvements introduced on the store premises will pertain to each lessor upon expiration of the relevant lease agreements. Based on the foregoing you now request for confirmation of your opinion that: 1. The sale by GDI of the movable properties located in its various store outlets is subject to the 10% VAT; 2. The payments received by GDI from Eastway and North Area in connection with the sale of movable properties located in its various store outlets is not subject to any EWT; and 3. The Deeds of Assignment dated March 17, 1998 executed by GDI in favor of Eastway and North Area in connection with the sale of movable properties located in its various store outlets are not subject to any documentary stamp tax other than the P15.00 DST on the notarial acknowledgment. In reply, please be informed as follows: 1. Section 4.100-1 of Revenue Regulations 7-95, as amended, implementing Republic Act No. 7716, as amended, defines the term "goods" to mean all tangible and intangible objects which are capable of pecuniary estimation. GDI's movable properties consisting of store furniture, kitchen and equipment and other personal properties found in its various store outlets are ordinary assets used in the course of its business. The sale thereof shall be subject to the 10% value-added tax imposed under Section 106 of the Tax Code of 1997. (VAT Ruling No. 22-93 dated April 30, 1993) Accordingly, we confirm your opinion that the sale by GDI of the movable properties located in its various store outlets is subject to the 10% VAT. 2. Considering that only payments made to persons enumerated in Revenue Regulations No. 2-98, as amended, are subject to the creditable withholding tax, and since payments made to GDI for the sale of its movable properties in various store outlets are not among those enumerated in said regulations, the payments received by GDI from Eastway and North Area are therefore not subject to the expanded withholding tax. (BIR Ruling No. 69-92 dated February 27, 1992) However, the income derived therefrom by GDI shall be subject to the normal income tax rate under Section 27(A) of the Tax Code of 1997. 3. Since store furniture, kitchen equipment and other movable properties are considered personal properties, the Deeds of Assignment dated March 17, 1998 executed by GDI in favor of Eastway and North Area concerning said properties located in its various store outlets are not subject to any documentary stamp tax other than the P15.00 DST on the notarial acknowledgment pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 86-86 dated June 23, 1986) LibLex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)