Crown Asia Properties, Inc.

August 27, 2008 BIR RULING [DA-(FIT-005) 176-08] 32; 121; RR 9-2004; #019-2005; DA-411-2007 Crown Asia Properties, Inc. Las Pias Business Center Alabang-Zapote Road, Talon Las Pias City Attention: Mr. Ponciano Carreon Chief Accountant Gentlemen : This refers to your letter dated August 21, 2008 requesting for confirmation of your opinion that the sale of subdivision lots by Banco de Oro Universal Bank ("BDO") in favor of Crown Asia Properties, Inc. ("CAPI") is not subject to value-added tax but to the gross receipts tax since the seller is a bank. aATESD Background On May 12, 2005, a Joint Venture Agreement ("JVA") was entered into by and between Equitable PCI Bank, Inc. (EPCIB) as the "Owner-Bank" and Crown Asia Properties, Inc. as the "Developer". Pursuant to the JVA, the parties agreed that the Owner-Bank shall contribute a portion, with an area of about 101,723 square meters, out of an aggregate area of 116,862 square meters of land, located in Sto. Domingo, Sta. Rosa, Laguna to a joint venture project and the Developer shall undertake to develop the subject properties into a mixed-use residential subdivision. Then on May 30, 2006 the parties executed a Deed of Partition whereby 60% of the resulting saleable lots were adjudicated to the Owner-Bank, while the Developer got the remaining 40% as its share in the joint venture project. Afterwards, EPCIB merged with BDO, with the latter as the surviving entity. Consequently, all the rights and interests of the former with respect to the above-described joint venture with the Developer was assigned to and assumed by BDO. Subsequently, the Developer has offered to buy from BDO its remaining unsold share of saleable lots in the joint venture. However, the parties agreed that the Developer will purchase the said subdivision lots as needed and each sale transaction will be covered by individual deed of absolute sale. In reply, please be informed that Section 121 of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9238, provides to wit: "SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions. There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: xxx xxx xxx c. On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 32 of this C od e . . . 7% In relation thereto, Section 3 of Revenue Regulations (RR) No. 9-2004 dated June 21, 2004, implementing Sections 121 and 122 of the Tax Code of 1997, also provides, viz. : AaITCS "SEC. 3. Imposition of Gross Receipts Tax (GRT) on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions. There shall be collected on gross receipts from sources within the Philippines by all banks and non-bank financial intermediaries performing quasi-banking functions in accordance with the following schedule: xxx xxx xxx (c) On royalties, rentals of property, real or personal, profit from exchange and all other items treated as gross income under Section 32 of the Code 5% " (now 7%) From the afore-quoted provisions of Section 121 of the Tax Code of 1997 and Section 3 of RR 9-2004, it can be inferred that the tax to be imposed on banks and non-bank financial intermediaries performing quasi-banking functions with regard to their profit from exchange of real or personal property and gains from dealings in property, shall be the gross receipts tax. In the instant case, the gain from the sale of the subdivision lots that will be derived by BDO is clearly subject to the gross receipts tax considering that BDO is a bank and said sale falls within the purview of Section 121 (c) of the Tax Code of 1997, which explicitly provides that profits from exchange and all other items treated as gross income under Section 32 of this Code shall be subject to the gross receipts tax of seven (7%) percent, which necessarily includes the sale or exchange of real or personal property owned by banks. Accordingly, this Office hereby confirms your opinion that the gain or income arising from the sale or exchange of subdivision lots by BDO in favor of CAPI is not subject to VAT, but to the gross receipts tax of 7% pursuant to Section 121 of the Tax Code of 1997, as amended by R.A. No. 9238 and implemented by Section 3 of RR No. 9-2004. 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. CaAIES Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service