Maripaz Handicrafts, Inc.

November 19, 2008 BIR RULING [DA-(C-135) 437-08] Sec. 27 (D) (5); 39 (A); RR 7-2003; UN-276-95; DA-397-2000; DA-219-05; DA-654-06 Maripaz Handicrafts, Inc. 211 Country Club Drive, Ayala Alabang Village Muntinlupa City Attention: Mr. Allen San Luis Corporate Secretary Gentlemen : This refers to your letter dated July 21, 2008 requesting confirmation of the tax consequence of the sale by Maripaz Handicrafts, Inc. ("MHI" for brevity) of its vacant lot located at Ayala Alabang Village. It is represented that MHI is a domestic corporation established under the laws of the Republic of the Philippines. MHI is engaged in the manufacture and export of handicrafts such as table linen and placemats. It has a vacant lot situated in Phase 3A-1, Block 6, Lot 13, Country Club Drive, Ayala Alabang Village, Muntinlupa City, covered by Transfer Certificate of Title No. 187852 of the Registry of Deeds of Makati, Metro Manila. The said property has remained idle and was never utilized by MHI in its operations as the subdivision developer prohibits the conversion of residential properties into commercial use. Neither was said property leased to third party. The said property is classified by MHI as capital asset and is recorded in its books as part of its other assets. On June 23, 2008, MHI sold the said property to Hereditas Holdings Corporation for and in consideration of the amount of P17,000,000.00. From the foregoing, it is your view that the sale by MHI of its vacant lot, classified as capital asset, is subject to the 6% capital gains tax and the 1.5% documentary stamp tax only. As such, said sale is not subject to the value-added tax. In reply, please be informed that the term "capital assets" as negatively defined in Section 39 (A) (1) of the Tax Code of 1997, means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowances for depreciation provided in Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. cHaCAS In view of the foregoing, and inasmuch as the aforementioned parcel of land of MHI was never used in business and neither was it offered for lease to third party, the said realty, accordingly, is considered as capital asset. Consequently, the sale of said parcel of land is subject to the 6% capital gains tax under Section 27 (D) (5) of the Tax Code of 1997, as amended. Likewise, the said sale is subject to the documentary stamp tax imposed under Section 196 of the same Tax Code. (BIR Ruling No. DA-397-2000 dated November 20, 2000 citing UN-276-95 dated July 6, 1995; Rev. Regs. No. 7-2003) Moreover, the sale of the above property by MHI, treated as its capital asset, is not subject to the 12% value-added tax imposed under Section 106 of the 1997 Tax Code, as amended, in accordance with Sec. 4.109-1 (B) (p) of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-2007, implementing Republic Act No. 9337. (BIR Ruling No. DA-219-2005 dated May 5, 2005 cited in BIR Ruling Nos. DA-653 & 654-2006, both dated November 7, 2006) 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