Home Development Mutual Fund

October 23, 2008 BIR RULING [DA-(C-104) 328-08] 27 (D) (5); 196; 2-98; 054-2000; 174-90 Home Development Mutual Fund Pag-IBIG Fund/WT Corporate Tower Mindanao Avenue, Cebu Business Park Cebu City Attention: Mr. Antonio C. Enriquez Branch Manager Gentlemen : This refers to your letter dated April 11, 2007 requesting confirmation of your opinion that the Deed of Assignment executed by and between the National Home Mortgage and Finance Corporation (NHMFC) and Home Development Mutual Fund (HDMF) for the purpose of transferring the rights and interests over the real estate mortgages to HDMF is not subject to the capital gains, withholding and documentary stamp taxes. The facts as represented are as follows: On April 24, 1997, a Deed of Assignment was executed by NHMFC, a government owned and controlled corporation organized under Presidential Decree (P.D.) 1267, in favor of HDMF, also a government owned and controlled corporation organized under P.D. 1752, whereby NHMFC assigned and transferred to HDMF all its rights and interests over the real estate mortgages executed by the buyers-beneficiaries prior to loan take-out to secure their individual loan accounts with NHMFC, in relation to their purchases of socialized housing units with the various project originators, in accordance with the Memorandum of Agreement (MOA) NHMFC and HDMF executed on July 24, 1996; that pursuant to the MOA, HDMF shall take-out an estimate of P7.5 Billion worth of housing loan from various originators under its Unified Home Lending Program (UHLP); and that in relation thereto, NHMFC commits to assign to HDMF all the mortgages subject to take-out including, among others, P2,616,705.00 covered by the above April 24, 1997 Deed of Assignment. ICacDE In reply, please be informed that pursuant to Sections 2.57-1 (A) (6) and 2.57.2 (J) of Revenue Regulations No. 2-98, as amended, implementing Sections 24 (D) (5) and Section 57 (A) and (B) of the Tax Code of 1997, as amended, a final or creditable withholding tax is imposed on the sale, exchange or disposition of real property located in the Philippines classified as capital assets and ordinary assets, respectively. From the foregoing, it is clear that only sales, exchanges or transfers of real properties are subject to the final or the creditable withholding tax imposed under Sections 24 (D) (5) and 57 (B) of the Tax Code of 1997, as amended, and as implemented by Revenue Regulations No. 2-98, as amended; hence, assignments of rights and interests over real estate mortgages which are not considered as real property as defined under Article 415 of the Civil Code of the Philippines are not included within the purview of the said regulations. Moreover, a Deed of Assignment is not a Deed of Sale because what is conveyed by the assignor is not property itself but the rights pertaining to such property or arising thereto. Accordingly, the above Deed of Assignment executed by NMHFC in favor of HDMF, whereby NHMFC assigned and transferred to HDMF its rights and interests over the real estate mortgages it instituted on the socialized housing units prior to loan take-out, is not subject to capital gains, withholding and documentary stamp taxes imposed under Sections 27 (D) (5), 57 (B) and 196, of the Tax Code of 1997, as amended. (BIR Ruling No. 054-2000 dated January 31, 2000 citing BIR Ruling No. 174-90 dated September 10, 1990). 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. cSaATC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service