Charismatic Outreach Ministries Foundation, Inc.

October 14, 2009 BIR RULING [DA-(C-233) 600-09] Sec. 27 (D) (5); RR 7-2003; DA (C-159) 493-2008 dtd 12/04/08 Charismatic Outreach Ministries Foundation, Inc. Lot 66-72 Elizalde St., BF Homes Subd. Paraaque City Attention: Primitivo G. Cabral Corporate Secretary Gentlemen : This refers to your letter dated September 3, 2009, requesting exemption from the payment of the Value-Added Tax on your sale of two (2) parcels of land classified as capital asset, pursuant to Section 39 (A) (I) in connection with Section 2 (B) of Revenue Regulations 7-2003. cDAISC Documents submitted disclosed that Charismatic Outreach Ministries Foundation, Inc. (Charismatic Outreach, for short) with TIN 117-072-060-000 is a non-stock, non-profit organization, registered with the Securities and Exchange Commission (SEC) on December 21, 2005, bearing Company Reg. No. 101646; that its primary purpose is to conduct, embark, engage and preach the Gospel throughout the world. (Matt 28:20) using all facets of media as channel for the realization of this endeavor, leading to the morse of the Holy Spirit in our duly lives and this includes teaching, preaching, deeper prayer life, exercise of the spiritual gifts, partaking of the Lord's table and fellowship with after Christian Communities; that faced with grave financial problem and unsettled debt, Charismatic Outreach is forced to sell two (2) parcels of land covered by Transfer Certificates of Titles (TCT's) 77389 & 69271, both of the Registry of Deeds for Paraaque City; that the said properties are adjacent to your principal place of business; that they remained idle and undeveloped since their acquisition as per Barangay Certification issued by the Barangay Chairman, Jeremy S. Marquez, Brgy. BF Homes, Paraaque City, hereto attached as Annex "A" and likewise certified by the Tax Mapping Division, Tanggapan Nang Tagatasang Panglungsod, Paraaque City as having no improvements. Certification is hereto attached as Annex "B"; that per your Financial Statement, said properties are classified as investment 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 lands 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 Sec. 39 (A) (1) of the 1997 Tax Code, 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 Charismatic Outreach is a religious organization and not a realtor, the subject properties classified under its books as investment properties are rightfully treated as capital assets. They are residential lots which are not substantially developed to their fullest potential. They remained idle and unproductive for business purposes as these was no income derived from such. Inasmuch as they are investment properties under its books, the subject properties does not fall under any of the assets enumerated under Section 39 (A) (1) of the Tax Code of 1997, as amended, and of Revenue Regulations No. 7-2003. (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 Charismatic Outreach of the said properties are subject to the 6% capital gains tax imposed under Section 24 (D) 5 of the Tax Code of 1997, as amended. ISCaTE Moreover, the sale of the above property of Charismatic Outreach 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, they are subject to the 1.5% documentary stamp tax imposed under Section 196 of the same Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will 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