BIR Ruling [DA-693-06]

December 11, 2006 BIR RULING [DA-693-06] Secs. 6 (E) & 196 of the Tax Code; DA-576-2006 Laya Mananghaya & Co . Certified Public Accountants & Management Consultants 22/F, Philamlife Tower, 8767 Paseo de Roxas Makati City 1226 Metro Manila Attention: Francisco G. Tagao Head, Tax and Corporate Services Ronald L. Carreon Director, Tax and Corporate Services Gentlemen : This refers to your letter dated 28 November 2006, requesting on behalf of your client, Fort Bonifacio Development Corporation , clarification of BIR Ruling No. DA-576-2006 issued by this office on 22 September 2006, particularly on the basis of the computation of the Documentary Stamp Tax (DST) on the transfer of the FBDC lots to various residents affected by the KALAYAAN VIADUCT PROJECT. FACTS It is represented that FBDC will not receive any monetary or any other form of consideration capable of being valued for the transfer of its replacement lots. This is especially so since the lots to be surrendered by the affected residents shall be transferred to DPWH and not to FBDC. The only benefit to be received by FBDC would be the access enhancement of the Bonifacio Global City arising from the easier access to and from the Makati Central Business District due to the implementation of KALAYAAN VIADUCT PROJECT. Such consideration is not capable of being valued for purposes of computing the DST due on the transfer of FBDC replacement lots. The transfer of the FBDC relocation lots shall be subject to DST under Section 196 of the Tax Code, as amended, but that the tax base for the DST computation shall be their fair market value or zonal value, whichever is higher. Considering that the zonal value of the FBDC replacement lots of P7,500.00 is higher than their fair market value per their tax declaration, their zonal value shall be used as basis for the imposition of the DST. BIR RULING We reply to your request as follows: Pertinent portion of the BIR Ruling DA-576-2006 dated September 22, 2006 states, to wit: HDIATS "3. Documentary Stamp Tax A. DST on FBDC transfer of the replacements lots The contemplated direct transfer of FBDC replacement lots to the affected residents is subject to DST under Section 196 of the Tax Code of 1997, as amended by RA 9243, as consistently held by this Office, while the exchange of properties resulting from an involuntary conversion is not subject to the corporate income tax or to the capital gains tax nor to the creditable withholding tax, the same shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Furthermore, the notarial acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code." Pursuant to Section 196 of the Tax Code, the computation of the DST shall be based on the consideration contracted to be paid for the transfer of the real property or on the property's fair market/zonal value determined in accordance with Section 6(E) of the Tax Code. Correlatively, Section 6(E) of the Tax Code provides that for purposes of computing any internal revenue tax, the value of properties shall be, whichever is the higher of the fair market value as determined by the Commissioner (zonal value) of the fair market value as shown in the schedule of values of the provincial and City Assessors (fair market value). ( BIR Ruling No. DA-312-99; ITAD Ruling No. 58-04 ) In BIR Ruling DA-576-2006 dated September 22, 2006 it has been observed that the facts surrounding the implementation of the KALAYAAN VIADUCT PROJECT constitute the same factual circumstances that were considered by the Technical Committee on Real Property Valuation (TCRPV) in resolving the zonal value of the subject properties. The "Bonifacio-Kalayaan Flyover" as referred to in the TCRPV Resolution, is the same project referred to as KALAYAAN VIADUCT PROJECT in this instant request for ruling. So also, the negotiations by FBDC with the affected residents for the acquisition and expropriation of the affected lots and the replacement of their lots with the Pitogo Relocation Area referred to in the TCRPV Resolution pertain to the obligations of FBDC imposed under the 1996 MOA and 1997 MOA for purposes of implementing the KALAYAAN VIADUCT PROJECT as referred to in the requested ruling. Accordingly, as represented in said BIR Ruling DA-576-2006, since the zonal value of the FBDC replacement lots of P7,500.00 is higher than their fair market value per their tax declarations, that zonal value shall be used as basis of imposition of the DST, the same basis used for computing the 12% VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service