BIR Ruling [DA-672-99]

December 9, 1999 BIR RULING [DA-672-99] Atty. Rene G. Baez 6th Floor, Ramon Cojuangco Building Makati Avenue Makati City S i r : This refers to your letter dated September 27, 1999 requesting for a ruling that the sale, transfer, barter and/or exchange of vacant and underdeveloped real property is exempt from 10% value-added tax but subject to 6% capital gains tax and 1.5% documentary stamp tax under Section 27(D)(5) and Section 196(b) of the Tax Code of 1997. LibLex It is represented that the subject property is owned by Crispina Trading Inc., a domestic corporation engaged in general trading business that previously, it was a holding company organized and established sometime in 1994 primarily to own and hold the subject property, among others; that the subject property was acquired in early 1995 but remains vacant and undeveloped up to this time; and that this is a full proof that it was never and is not used in the ordinary course of trade or business of the company. In reply, please be informed that Sections 109(w), 27(D)(5) and 196(b) of the Tax Code of 1997, provides as follows: "SEC. 109. Exempt Transaction . The following shall be exempt from the value-added tax: prcd xxx xxx xxx "(w) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business . . . xxx xxx xxx" "SEC. 27. Rates of Income Tax on Domestic Corporation . xxx xxx xxx "(D) Rates of Taxes on Certain Passive Incomes . xxx xxx xxx" "(5) Capital Gains Realized from the Sale, Exchange of Disposition of Lands and/or Buildings . A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings. xxx xxx xxx "SEC. 196. Stamp Tax on Deeds of Sale and Conveyance of Real Property . On all conveyance, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other really sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government, the tax herein imposed shall be based on actual consideration. xxx xxx xxx "(b) For each additional One thousand pesos (P1,000), or fractional part thereof in excess of One thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00). prcd xxx xxx xxx" Inasmuch as the subject property is not being offered for sale or for lease to customers, the same can be considered as real property not primarily held for sale or for lease. Moreover, the said property, being vacant and undeveloped, is properly considered as not actually used in the business of Crispina Trading Inc., and classified as capital asset (VAT Ruling No. 021-98 dated August 5, 1998; BIR Ruling No. 54-96 dated May 14, 1996; and BIR Ruling No. 33-97 dated April 1, 1997. Accordingly, the transfer of said real property is exempt from the 10% VAT but subject to the final 6% capital gains tax and 1.5% (P15.00 for every P1,000.00) documentary stamp tax based on the consideration contracted to be paid or on its fair market value, whichever is higher pursuant to the aforecited provisions. 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. LibLex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue