Haksan International Phils., Inc.

June 16, 2009 BIR RULING [DA-(C-090) 291-09] Section 27 (D) (5); Rev. Regs. 7-2003; DA-592-2006; DA(C-102)324-2008; DA(C-159)493-08; DA(C019)215-09; DA-270-2004 Haksan International Phils., Inc. # 1 Col. Martinez cor. Quezon Avenue Quezon City Attention: Chang Bae Park President Gentlemen : This refers to your undated letter requesting a clarificatory ruling on whether or not the sale by HAKSAN INTERNATIONAL PHILS., INC. of its real property located at Red Palm St., Valle Verde 4, Ugong, Pasig City, is subject to capital gains tax under Section 27 (D) (5) of the Tax Code of 1997. SCaEcD Documents submitted disclosed that HAKSAN INTERNATIONAL PHILS., INC. (HAKSAN, for short), with business address at #1 Col. Martinez St., Quezon City, is a domestic corporation registered with the Securities and Exchange Commission (SEC) on August 9, 2007, bearing Company Registration No. CS200712503; that its primary purpose is to engage in and carry on the business of buying, selling, distributing, marketing at wholesale, all kinds of goods, commodities, wares and merchandize of every kind and description, i.e. , household appliances, articles and equipment; that sometime in October, 2007, HAKSAN acquired a real property consisting of 851 square meters located at Valle Verde 4, Ugong, Pasig City and covered by TCT # PT-136267 of the Registry of Deeds for Pasig City; that said property remained idle and undeveloped since its acquisition as evidenced by a Certification issued by the Office of the Assessor Pasig City and likewise a Barangay Certification issued by the Punong Barangay, Ugong, Pasig City; and that it is an investment account and was never used by HAKSAN in its trade or business. In reply, please be informed that under Section 27 (D) (5) of the Tax Code of 1997, as amended, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of land 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. On the other hand, under Section 39 (A) (1) of the Tax Code of 1997, as amended the term "capital assets" is negatively defined as property held by the taxpayer (whether or not connected with his trade or business) but does not include: (i) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or (ii) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or (iii) property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or (iv) real property used in trade or business of the taxpayer. Considering that HAKSAN, is a trading company engaged in the business of buying, selling, distributing, marketing of goods, commodities, wares and merchandize of any kind, i.e. , household appliance, articles and equipment and not a realtor, its real property registered under its name located at Red Palm St., Valle Verde 4, Ugong, Pasig City, is rightfully treated as capital asset, inasmuch as it remained idle, unproductive, undeveloped and without any improvement. It is a residential lot with no existing structure/improvement as certified by the Office of the City Assessor Pasig City and likewise certified by the Punong Barangay Ugong, Pasig as being idle and undeveloped. It is classified in its books as an investment account, hence, it does not fall under any of the assets enumerated under Section 39 (A) (1) of the Tax Code of 1997, as amended, and of Revenue Regulations No. 7-2003. (BIR Ruling No. DA-152-2004 dated March 31, 2004 cited in BIR Ruling No. DA-270-04 dated March 17, 2004) The sale by HAKSAN of said property is subject to the 6% capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as amended. SIDEaA Moreover, the sale of the above property of HAKSAN treated as capital asset is not subject to the 12% value-added tax imposed under Section 106 of the Tax Code of 1997, as amended. However, it is subject to the 1.5% documentary stamp tax imposed under Section 196 of the same Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will 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