T-Mar Industries, Inc.

December 13, 2007 BIR RULING [DA-642-07] 2-98 DA-451-2003 T-Mar Industries, Inc. Meadows of Camelot Subdivision and Camelot Villages 1 & 2 2878 LGM Bldg., Burgos Ext. North Drive Villamonte, Bacolod City Attention: Mr. Romanito M. Solinap President Gentlemen : This refers to your letter dated July 24, 2007 requesting exemption from the payment of penalties for late payment of expanded withholding tax and documentary stamp tax in relation to the transfer of titles to your clientele for your economic housing units on your project, Meadows of Camelot Subdivision. IHEaAc It is represented that under the Housing Loan Program of Home Development Mutual Fund (PagIBIG Fund) the housing loan accounts of your clients are processed under the "WITH BUYBACK GUARANTY" credit window; that this credit facility requires the developer to buy back defaulting accounts (a minimum of 3 months of non payment of monthly amortizations) for whatever loan value that particular account was granted; that at this point, a Contract to Sell and Deed of Assignment are the main loan documents that are notarized; that there is no transfer of ownership of the subject property until the seasoning period of two years is over and subsequently, a Deed of Sale is executed to facilitate the transfer of title and accordingly pay transfer costs and taxes; and that as per oral communication with this office, you stated that the EWT and DST were based on the Contract to Sell executed between you and your clients and not on the Deed of Absolute Sale, hence, penalties were imposed for your alleged late payment. In reply thereto, please be informed that Section 163 of Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations, 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." TAIEcS The execution of a Contract to Sell by the developer in favor of a client/unit purchaser does not vest on the latter title over the subject property. Likewise, the execution of a Deed of Assignment by the developer in favor of HDMF, of the property subject to said Contract to Sell, does not vest title to the HDMF nor to a client/unit purchaser, since the purpose of executing said deed and annotating the same in the title is just to secure the housing loan contracted by a client/unit purchaser with HDMF. The operative act, therefore, in the perfection/consummation of a contract of sale of real property, which ultimately vests title to the vendee/transferee is the execution of the Deed of Absolute Sale. cCSDaI Such being the case, the execution by T-Mar Industries, Inc. of a Contract to Sell in favor of a client/unit purchaser and subsequently its execution of a Deed of Assignment in favor of HDMF, in order to secure the housing loan of a client/unit purchaser, are not subject to the creditable withholding tax under Section 2.57.2 (J) of Revenue Regulations No. 2-98, implementing Section 57 (B) of the Tax Code of 1997, nor to the documentary stamp tax under Section 196 of the same Code. However, the notarial acknowledgements of both documents are subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-445-98 dated October 5, 1998) On the other hand, upon execution by T-Mar Industries, Inc. of a Deed of Absolute Sale in favor of a client/unit purchaser, which will take place not later than twenty-four (24) months from the date of a loan take-out, and after the CTS account of the client/unit purchaser shall have qualified into a Real Estate Mortgage (REM), a creditable income tax shall be withheld on the gross selling price or total amount of consideration or its equivalent, paid for the said sale of realty in accordance with Section 2.57.2 (J) of Revenue Regulations No. 2-98. HTCaAD Moreover, the above Deed of Absolute Sale is subject to the documentary stamp tax under Section 196 of the Tax Code of 1997, based on the consideration or value received or contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the same Code, whichever is higher. Furthermore, the Real Estate Mortgage/Loan Agreement executed by and between the HDMF and the client/unit purchaser is subject to the documentary stamp tax under Section 195 of the same Code. (BIR Ruling No. DA-451-2003 dated December 5, 2003) In summary, execution of a Contract to Sell, the initial payment of which constitute not more than 25% of the total purchase price, does not vest title over the subject property, hence, not subject to the creditable withholding tax under Section 2.57.2 (J) of Revenue Regulations No. 2-98, implementing Section 57 (B) of the Tax Code of 1997, nor to the documentary stamp tax under Section 196 of the same Code. Hence, T-Mar Industries, Inc. is exempt from the payment of penalties of the alleged late payment of creditable withholding tax and documentary stamp tax considering the fact that the same were based on the executed Contract to Sell and not on Contract of Sale. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. aHECST Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service