Vicar Worldwide, Inc.

December 8, 2009 BIR RULING [DA-(C-304) 751-09] Sec. 27 (D) (5); RR 7-2003; DA (C-237) 610-2009 dtd 10/19/09 Vicar Worldwide, Inc. 5th Floor ITC Building, Reposo St. Buendia, Makati City Attention: Agripino C. Rubio President Gentlemen : This refers to your letter dated November 19, 2009, requesting a clarificatory ruling on whether the sale of a residential condominium unit which is classified as investment property is subject to capital gains tax under Section 27 (D) (5) of the Tax Code of 1997. It is represented that Vicar Worldwide, Inc. ( Vicar, for short), with TIN 002-854-974, is a domestic corporation registered with the Securities and Exchange Commission (SEC) on July 28, 1993, bearing SEC Regs. No. AS O93005719; that it was principally organized to engage in the business of trading of all kinds of goods and general commodities; that it ceased operation since year 2004 up to the present; that Vicar during its commercial operations had acquired among other investment properties, a residential condominium unit located at the 45th Floor, Unit 45-A1 of the Golden Empire Tower, a condominium corporation with address at 1322 Roxas Boulevard, Ermita, Manila; that said condominium unit is covered by Condominium Certificate of Title (CCT) No. 60135 consisting of 258.52 square meters with three (3) assigned parking slots (P553, P554 & P555) and a storage space (P624); that the unit had remained idle since its acquisition in year 2006; that it was never rented out to any person nor to any entity much less it was never occupied by the owner; that it was not used in business by Vicar , per Certifications issued by Golden Empire Tower and by the Office of the Sangguniang Barangay 668, Manila on November 18, 2009, and November 16, 2009, respectively; and that it is recorded in Vicar's books of accounts as investment property. AaEcDS 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 Vicar is a trading company and not a realtor, the subject property classified under its books as investment property is rightfully treated as capital asset. It is a residential condominium unit which remained idle and was never been used or intended for any purpose other than as investment in real property. The property remained unproductive for business purposes as there was no income derived from such. Inasmuch as it is an investment property under its books, the same 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 Vicar of the said property is subject to the 6% capital gains tax imposed under Section 24 (D) 5 of the Tax Code of 1997, as amended. Moreover, the sale of the above property of Vicar treated as capital asset is 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. 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