N. Ducusin & Partners Law Offices

July 8, 2009 BIR RULING [DA-(C-120) 358-09] 27 (A); 57 (B); RR 2-98; 078-94; 76-96; DA-183-97; DA-221-06; DA-017-03; DA-225-03; DA-(C-070) 235-08; DA-343-08 N. Ducusin & Partners Law Offices Unit 2311, 23/F, Herrera Tower Valero cor. V.A. Rufino Streets, Salcedo Village Makati City Attention: Atty. Noel C. Ducusin Senior Partner Gentlemen : This refers to your letter dated June 1, 2009 requesting on behalf of your clients, MOATECH REALTY INC. and MOATECH MANUFACTURING PHILS. INC., confirmation of your opinion that they are no longer obliged to withhold creditable withholding taxes or any other tax on its purchase of land and building considering that the sellers of the aforementioned realties have already paid the income taxes due thereon. The facts, as represented, are as follows: FIRST TRANSACTION The seller, SUMISOLAND REALTY INC. ("SRI"), is a corporation duly organized and existing under Philippine laws with office address at the First Philippine Industrial Park, Sto. Tomas, Batangas. Its registration with the Philippine Economic Zone Authority (PEZA) has already lapsed. As such, it is already in the process of liquidating its assets. The buyer, MOATECH REALTY INC. ("MRI"), is a corporation duly organized and existing under Philippine laws with office address at the First Philippine Industrial Park, Sto. Tomas, Batangas. MRI is a PEZA-registered corporation with exemption from all national and local taxes in lieu of 5% tax on gross income from its PEZA-registered activity. On October 21, 2008, a Deed of Sale over two (2) parcels of land with a total combined area of 31,744 sq.m., registered under Transfer Certificate of Title (TCT) Nos. 85453 and 88425 in the Registry of Deeds of Tanauan, Batangas was executed by and between SRI and MRI with purchase price of USD$970,000.00, the full purchase price of which was paid and remitted in full by MRI to SRI as of December 2008. SRI reported its income from this transaction and paid the corresponding taxes thereon to Revenue District Office (RDO) No. 59, Lipa City, for the year 2008 as evidenced by the duly filed Income Tax Return and its Audited Financial Statements. DSAacC SECOND TRANSACTION The seller, ISOLA ASIA PACIFIC (PHILS.) INC. ("ISOLA"), is a corporation duly organized and existing under Philippine laws with office address at the First Philippine Industrial Park, Brgy. Sta. Anastacia, Sto. Tomas, Batangas. ISOLA used to be a PEZA-registered enterprise. It has lost its incentives when its registration expired in the year 2007. It is now in the process of liquidating its assets. The buyer, MOATECH MANUFACTURING PHILS. INC. ("MMPI"), is a corporation duly organized and existing under Philippine laws with office address at the First Philippine Industrial Park, Brgy. Sta. Anastacia, Sto. Tomas, Batangas. MMPI is a PEZA-registered corporation enjoying income tax holiday (ITH) incentive. On September 19, 2008, a Deed of Sale over a building with a lot area of 15,000 sq. m., more or less, covered by Tax Declaration No. 2006-025-00091, was executed by and between ISOLA and MMPI with purchase price of USD$3,530,000.00, the full purchase price of which was paid and remitted in full by MMPI to ISOLA as of December 2008. ISOLA reported its income from this transaction and paid the corresponding taxes thereon to Revenue District Office (RDO) No. 59, Lipa City, for the year 2008 as evidenced by the duly filed Income Tax Return and its Audited Financial Statements. In reply, please be informed that in BIR Ruling No. 078-94 dated March 18, 1994, this Office had ruled to the effect that if the income derived from the sale of real property had already been reported by the seller in the year of sale, the buyer is no longer required to withhold any expanded/creditable withholding tax. Likewise, in BIR Ruling No. DA-017-2003 dated January 22, 2003 citing BIR Ruling No. 079-96 dated July 24, 1996, this Office ruled that payment by the seller of the income tax due on the sale of real property subject to the expanded/creditable withholding tax is already a substantial compliance with the withholding tax requirements. The foregoing has the effect of exonerating the buyer-withholding agent from his/its failure of performing his/its obligation to deduct and withhold the tax as prescribed in the withholding tax regulations. Thus, the penalties, surcharge and interest imposed for failure to deduct and withhold the tax shall not apply anymore in this case. In the instant case, the sellers, SRI and ISOLA, have both reported and declared the income they derived from the above-mentioned sale transactions. Moreover, both have paid already their corresponding income tax liability for the taxable year when the said sale transactions took place. Since the income in the above sale transactions were both included or declared by the SRI and ISOLA as part of their taxable income during the year the transactions took place or subsequent thereto, there is, therefore, substantial compliance with the withholding tax requirements. Accordingly, the penalty imposed under Section 251 of the 1997 Tax Code, as amended, for failure of the withholding agent to perform his/its obligation shall not be applied anymore to MRI and MMPI. Consequently, the Revenue District Officer concerned may then issue the corresponding CAR so that titles to the subject properties may be transferred in the name of the buyers, MRI and MMPI. [ BIR Ruling Nos. DA-183-97 dated April 16, 1997, DA-221-06 dated April 7, 2006, DA-017-2003 dated January 22, 2003, DA-225-03 dated July 16, 2003, DA-(C-070) 235-08 dated September 18, 2008 and DA-343-08 dated June 4, 2008 ] EIAaDC 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