Alliance Commodities Center, Inc.

October 22, 2008 BIR RULING [DA-(C-102) 324-08] Sec. 27 (D) (5); RR 7-2003; DA-592-2006 dtd. 9/11/2006 Alliance Commodities Center, Inc. # 3 L. San Diego St., Canumay Valenzuela Attention: Chua Tin Bing Treasurer Gentlemen : This refers to your letter dated September 25, 2008, requesting a confirmatory ruling on your opinion that the sale by ALLIANCE COMMODITIES CENTER, INC. of its parcel of land which remained idle and undeveloped from its acquisition and was consistently classified as an investment property on its books and thus considered as capital asset, is accordingly: 1. subject to the capital gains tax of 6% pursuant to Section 27 (D) (5) of the Tax Code of 1997; 2. subject to the documentary stamp tax at the rate of P15.00 for every P1,000.00 or fractional part thereof in excess of P1,000.00, 1.5% of the consideration or fair market value of the properties, whichever is higher, pursuant to Section 196 of the Tax Code of 1997; and 3. exempt from 12% VAT, pursuant to Sec. 109 (w), supra, as amended by R.A. 9337, as implemented by Revenue Regulations No. 16-2005 (BIR Ruling No. DA-560-06 dated September 19, 2006). It is represented that ALLIANCE COMMODITIES CENTER, INC. is a domestic corporation registered with the Securities and Exchange Commission (SEC), on October 7, 1980 with SEC Registration No. 95404 with office address at San Diego St., Canumay, Valenzuela City; that its primary purpose is to engage in the manufacture, production, fabrication and assembly, and in the trading, marketing or general merchandising at wholesale or retail of goods, wares, merchandise, products of all kinds and description, such as, but not limited to plastic machinery, plastic products and materials, among others; that sometime in February 15, 2007, it acquired, as one of its investment properties, a parcel of land described as Road Lot 3, Pansol, Diliman, Quezon City, consisting of 658 sq. m. classified as Residential Lot and embraced by TCT No. N-299582 of the Registry of Deeds for Quezon City; that it remained undeveloped and idle since its acquisition as per Certification issued by the Treasurer's Office Quezon City as having no improvement erected on the land and likewise by a Barangay Certification duly issued by the Brgy. Captain of the place where the property is located; that it is an investment account and was never used by ALLIANCE COMMODITIES into its trade or business. ALLIANCE COMMODITIES is now contemplating the sale of the said land to qualified purchasers for value. EAaHTI 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 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. On the other hand, under Sec. 39 (A) (1) of the 1997 Tax Code, 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 ALLIANCE COMMODITIES, INC. is a manufacturing company and not a realtor, the subject real property registered under its name is rightfully treated as capital asset inasmuch as the said real property remained idle, unproductive and without any improvement. It is a residential lot with no structure built thereon as certified by the City Assessor's Office Quezon City, thus under ALLIANCE COMMODITIES's books, it was classified as investment property since the time of its acquisition, 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 the ALLIANCE COMMODITIES 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. Moreover, the sale of the above property of ALLIANCE COMMODITIES 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. cCAIDS 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service