Siylayco Realty Corporation

July 17, 2009 BIR RULING [DA-(C-131) 379-09] Sec. 27 (D) (5); RR 7-2003; DA (C-102) 324-2008 dtd. 10/22/08 Siylayco Realty Corporation Room 205, #524 San Quintin Paredes Street Manila Attention: Jacqueline S. Share Authorized Representative Gentlemen : This refers to your letter dated June 8, 2009 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. aEIADT It is represented that SIYLAYCO REALTY CORPORATION is a stock corporation registered with the Securities and Exchange Commission (SEC); that its Articles of Incorporation shows that its purpose was to purchase or otherwise acquire and to own, hold, sell, exchange, mortgage, lease, develop and otherwise deal in and dispose of real estate and any interest or right in lands and buildings; to manage, administer and improve the real properties owned or controlled by the corporation; to invest money in real estate for itself and/or for other parties; and to carry on a general real estate and construction business in connection therewith without necessarily engaging in subdivision business; that the company, however, never started commercial operations; and was not able to serve its purpose as stated in its Articles of Incorporation; that SRC acquired three parcels of land with Transfer Certificate of Title Nos. 149092, 149093, and 149094 ("Properties") issued by the Registry of Deeds of Muntinlupa, Metro Manila as investment properties; that the Properties, from the time of their acquisition have been recorded in the books of accounts and presented in SIYLAYCO REALTY CORPORATION's audited financial statements as "Investment in Real Property"; 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 Muntinlupa Assessors Office; and that the Properties have never been used by SIYLAYCO REALTY CORPORATION in its trade or business, never leased out and never included in its stock in trade or inventory for sale to customers; that SIYLAYCO REALTY CORPORATION 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 SIYLAYCO REALTY CORPORATION never commenced commercial operations since its incorporation, the subject property registered under SIYLAYCO REALTY CORPORATION'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 SIYLAYCO REALTY CORPORATION 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. Moreover, the sale of the above properties of SIYLAYCO REALTY CORPORATION 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. ScAHTI 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