BIR Ruling [DA-584-04]

November 17, 2004 BIR RULING [DA-584-04] Sec. 27 (D) (5); 184-93 Office of the City Legal Officer City of Iloilo Plaza Libertad, Iloilo City Attention: Ms. Lorna G. Laurea Legal Officer Gentlemen : This refers to your letter dated April 12, 2004 requesting for a resolution on your "Request for Reconsideration" on the ruling issued by the Regional Director of Revenue Region No. 11, Iloilo City, dated March 4, 2002, denying the claim of Iloilo City Government for exemption from the payment of capital gains tax on its sale of a parcel of land located at Pavia, Iloilo to the Commission on Audit. It is your contention in your "Request for Reconsideration" that the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, which is partly the basis for the denial of your claim for exemption, applies only to sale of real property by individuals. Thus, from the foregoing, it is your position that the sale of real property by the City of Iloilo, a corporation, is not subject to the capital gains tax, the same is not covered by the aforementioned provision of the Tax Code. In reply thereto, please be informed that under Section 24(D)(1) of the Tax Code of 1997, as amended, only individuals, including estates and trusts shall be taxed on the gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, the City of Iloilo, not being an individual, estate or trust, is not subject to the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code, as amended, on its sale of real property to the Commission on Audit. However, under Section 27(D)(5) of the Tax Code of 1997, as amended, a 6% capital gains tax is imposed on the gains presumed to have been realized from the sale, exchange or disposition of lands and/or buildings by a corporation. Since under Presidential Decree Nos. 1177 and 1931, as well as Executive Order No. 93, the tax and duty exemption privileges, including the preferential tax treatment of all units of government, i.e., the National Government, its agencies and subdivisions, as well as the government-owned and controlled corporations, have been withdrawn (BIR Ruling No. 184-93 dated May 5, 1993), the sale of real property by the City of Iloilo, a political subdivision of the National Government, to the Commission on Audit, therefore, is subject to the 6% capital gains tax imposed under Section 27(D)(5) of the Tax Code, as amended. CAcEaS Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group