Superior Parañaque Homes, Inc.

June 19, 2009 BIR RULING [DA-(C-096) 308-09] Sec. 27 (D) (5); RR 7-2003; DA(C-102)324-2008 dtd. 10/22/08 Superior Paraaque Homes, Inc. 11/F PDCP Bank Centre, Leviste St. Salcedo Village, Makati City Attention: Francis P. Hernando President Gentlemen : This refers to your letter dated December 19, 2008 requesting for a confirmation of your opinion that the sale of your three (3) parcels of land is subject only to the six percent (6) capital gains tax as these are its capital assets pursuant to Section 27 (D) (5) of the Tax Code of 1997. TCIHSa It is represented that SUPERIOR PARAAQUE HOMES, INC. (SPH Inc.) is a stock corporation registered with the Securities and Exchange Commission (SEC) on February 27, 1995; that it was principally organized to acquire by purchase, lease, donation, or otherwise, and to own, use, improve, develop, subdivide, sell, mortgage, exchange, lease, develop and hold for investment or otherwise, real estate of all kinds, whether improve, manage or otherwise dispose of buildings, houses, apartments and other structures of whatever kind, together with their appurtenances; that on March 23, 1995 SPH Inc. acquired three parcels of land with Transfer Certificates of Titles Nos. 93243, 92344 and 93245 (hereinafter referred to as "Properties") issued by the Registry of Deeds of Paraaque, Metro Manila, with a total land area of ELEVEN THOUSAND SEVEN HUNDRED ONE (11,701) square meters; that the Properties, from the time of their acquisition have been recorded in the books of accounts and presented in SPH Inc.'s audited financial statements as "Investment Property"; that the Properties are the only assets of the company; that as an "Investment Property", said parcels of land have remained undeveloped, unimproved, idle and vacant as can be shown by the Certificate of No Improvement issued by the Paraaque City Assessors Office; and that the Properties have never been subjected to any depreciation since its acquisition, never used by SPH Inc. in its trade or business, never leased out and never included in its stock in trade or inventory for sale to customers; that SPH Inc. never started commercial operations and it decided to sell the Properties. 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 SPH Inc. never commenced commercial operations since its incorporation, the subject property registered under SPH Inc.'s name, is properly treated as capital assets. The said real property classified as "investment property" which are idle, unproductive and unimproved since the time of acquisition, and do not fall under any of the assets enumerated under Section 39 (A) (1) of the 1997 Tax Code, as amended, and of Revenue Regulations No. 7-2003, are classified as capital assets (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 SPH Inc. of said property therefore, is subject to the 6% capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as amended. cHCIEA Moreover, the sale of the above properties of SPH Inc. treated as capital assets are 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 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