General Milling Corporation

October 14, 2009 BIR RULING [DA-(C-232) 599-09] Secs. 27 (D) (5); 39 (A); RR 7-2003; UN-276-95; DA-397-2000; DA-219-05; DA-654-06; DA-567-07 General Milling Corporation 33/F, Export Bank Plaza Gil Puyat corner Chino Roces Avenue Makati City Attention: Mr. Cesar G. Avila, Jr. Director for Accounting Gentlemen : This refers to your letter dated July 11, 2009 requesting confirmation of the tax consequence of the sale by General Milling Corporation (GMC) of its idle land. SHacCD It is represented that GMC is a domestic corporation established under the laws of the Republic of the Philippines. GMC is engaged mainly in the manufacture of flour and feeds. It has a land in San Pedro, Laguna, covered by Transfer Certificate of Title No. T-356883, which was used as a plant site for its coffee manufacturing operation. Due to heavy losses, GMC decided to close its coffee manufacturing operation on September 30, 2001. Since then, the property remained idle and is neither used for any other operations nor leased to third party. GMC intends to sell the said idle land. From the foregoing, it is your view that the sale by GMC of its idle land, 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. In view of the foregoing, and inasmuch as the aforementioned parcel of land of GMC is no longer used in its business since 2001 and that it lie idle from then on, 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 Nos. DA-567-05 dated October 25, 2007 & DA-397-2000 dated November 20, 2000 citing UN-276-95 dated July 26, 1995; Rev. Regs. No. 7-2003) Moreover, the sale of the above property by GMC, 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 No. 16-2005, 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 & DA-567-05 dated October 25, 2007) 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. cSEDTC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service