Sapalo Velez Bundang & Bulilan

November 15, 2009 BIR RULING [DA-(C-266) 671-09] Section 24 (D) (1); BIR Ruling No. 083-99, 024-2000 & DA-229-02 Sapalo Velez Bundang & Bulilan 11th Floor, Security Bank Centre 6776 Ayala Avenue Makati City Attention: Atty. Romeo H. Duran Atty. Eunice Hyacinth L. Tan Gentlemen : This refers to your letter dated July 6, 2009 requesting on behalf of your client, Prestige Labels Co., Inc. ("Prestige Labels" for brevity) for confirmation of your opinion, that the assignment of rights over the Contract to Sell involving a residential condominium unit by Prestige Labels to La Vie Benie Corp. ("La Vie" for brevity) under the Deed of Assignment with Assumption of Obligations is not subject to the final withholding tax of six percent (6%) and the documentary stamp tax of P15.00 under Section 188 and not under Section 196, both of the same Tax Code. As represented, Prestige Labels is a domestic corporation organized and existing under and by virtue of Philippine laws, with address at 90 Don Rufino Ave., Tahanan Village, Paraaque City. On the other hand, La Vie is, likewise, a domestic corporation with address at 2F, Jomaniq Bldg., 15 President's Avenue, Teoville Subdivision, Brgy. BF Homes, Paraaque City. On August 9, 2007, a Contract to Sell was executed between Prestige Labels and Cityland Incorporated ("Cityland" for brevity, whereby Prestige Labels bought from Cityland, on installment basis, a residential condominium unit in its "The Manila Residences" Project (Project) located at Taft Avenue, Malate, Manila. At the time of said purchase, the Project was still in its pre-selling stage. On May 6, 2009, the construction of the Project still incomplete, Prestige Labels executed a Deed of Assignment with Assumption of Obligations in favor of La Vie, wherein Prestige Labels transferred its rights over the abovementioned property with the condition that La Vie will be directly responsible for all amounts due and payable to Cityland. Furthermore, the said transaction was without any monetary condition and all the payments made to Cityland were reimbursed to Prestige Labels by La Vie. DSATCI In reply, please be informed that pursuant to Section 2.57-1 (A) (6) of Revenue Regulations (RR) No. 2-98, implementing Section 24 (D) (1) of the Tax Code of 1997, as amended, a final withholding tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of the same Tax Code, whichever is higher. From the foregoing, it is clear that only sales, exchanges or transfers of real properties are subject to the final withholding tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, and as implemented by RR No. 2-98. Hence, assignments of rights over realty although classified as real property under the Civil Code, are not included within the purview of the said regulations considering that in assignments of rights the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertain. Thus, the assignment of rights over the Contract to Sell involving a residential condominium unit by Prestige Labels to La Vie under the Deed of Assignment with Assumption of Obligations does not equate to a sale. A deed of assignment of rights in real property is not a deed of sale of real property itself but the rights pertaining to such property (BIR Ruling No. DA-252-96 dated July 18, 1996). Since no sale is involved, there is no basis for the imposition of withholding tax under Revenue Regulations (RR) No. 2-98, as amended (BIR Ruling No. 031-01, dated March 15, 2001). In the same vein, there is no basis for the imposition of the CGT or the VAT. Further, the assignment of rights, not being a sale of real property, is not subject to DST under Section 196 of the 1997 Tax Code, as amended. Said section refers to the sale of real property, which is obviously not the case in this instance. In this regard, no DST can be imposed on said assignment (BIR Ruling No. DA-240-01, dated November 16, 2001). Such being the case and since the transfer by Prestige Labels of its rights over the abovementioned realty in favor of La Vie is without any monetary consideration, this Office is of the opinion as it hereby holds that it is not subject to the final withholding tax imposed under Section 2.57-1 (A) (6) of Revenue Regulations No. 2-98, as amended, nor to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgment of said Deed of Assignment with Assumption of Obligations is subject to the documentary stamp tax of P15.00 on certificates under Section 188 of the same Code. HTcADC 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