Macam Raro Ulep & Partners

December 21, 2009 BIR RULING [DA-(C-327) 800-09] Sec. 27 (D) (5); RR 7-2003; DA (C-233) 600-2009 Macam Raro Ulep & Partners Unit 1008, 10/F Atlanta Center Annapolis St. Greenhills, San Juan, Metro Manila Gentlemen : This refers to your letter dated June 19, 2009, requesting in behalf of your client, Congregation of Our Lady of the Cenacle of the Philippines, exemption from the payment of the Value-Added Tax (VAT) on its sale of its properties being classified as capital assets, pursuant to Section 39 (A) (1) of the Tax Code of 1997 in connection with Section 2 (B) of Revenue Regulations No. 7-2003. HAaDcS It is represented that the Congregation of Our Lady of the Cenacle of the Philippines, (Congregation, for short) with TIN 001-290-896-000 is a non-stock, non-profit organization registered with the Securities and Exchange Commission (SEC) for religious purposes; that it is the absolute and registered owner of two (2) parcels of land both located at Tagaytay City covered by Transfer Certificates of Title (TCT's) Nos. T-10839 & T-10840 of the Registry of Deeds of Tagaytay City; that the Congregation, through its Board, unanimously agreed to dispose of the properties, which in its books are under investment account; that the properties remained idle and vacant without any improvements introduced since their acquisition as per Certification issued by the Office of the City Assessor-Tagaytay City; that the properties were never used by the Congregation on its trade or business as per Barangay Certification issued by Orlando R. Jumarang-Chairman, Barangay Tolentino West, Tagaytay City; that the Congregation had executed the Deed of Absolute Sale over the said properties in favor of J. Kings and Sons Corporation on June 8, 2009, for the amount of P20,000,000.00. 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 the Congregation 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 there were no income derived from such. Inasmuch as they are investment properties under its books, the subject properties do 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 Congregation 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. TSEcAD Moreover, the sale of the above properties of Congregation 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 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