Ms. Bess Ann R. Dizon

August 11, 2008 BIR RULING [DA-(I-012) 130-08] 24 (D) (1); 196; DA-348-2008 Ms. Bess Ann R. Dizon Banilad, Cebu City Madam : This refers to your letter dated April 24, 2008, as indorsed by Regional Director Jose N. Tan, Revenue Region No. 13, Cebu City, requesting in effect, for a ruling that the transfer of rights over a realty is exempt from payment of the capital gains tax. TaSEHC Documents submitted show that Bank of Commerce (BOC), a commercial banking corporation organized under Philippine laws is the registered owner of a parcel of land located at Block 31, Lot 11, Brgy. Buhisan, Cebu City with a total land area of one hundred fifty (150) sq.m., more or less. The afore-stated property is covered by Transfer Certificate of Title (TCT) No. 163748 of the Registry of Deeds for the Province of Cebu. On November 24, 2004, BOC sold the above-quoted property to Mr. Rolando F. Alcayde on "as is where is" basis through a Deed of Conditional Sale with a 5% down payment and balance payable over 15 years, bearing an interest of 13.2% per annum. Subsequently, on October 19, 2006, Mr. Alcayde assigned his rights and interests over the lot to Florentina Teyu and Domingo Teyu via a Deed of Assignment and notarized by Atty. Esmeralda R. Cunanan which was recorded in her Notarial Registry as Doc. No. 33; Page No. 8; Book No. IV; Series of 2006. The assignees had assumed the amortization of Mr. Alcayde with BOC. Both Mr. Alcayde and Ms. Teyu acknowledged and confirmed that the former has no liability whatsoever on the assignment of the said property and that said assignment cancels/revokes and terminates the Deed of Conditional Sale between BOC and Mr. Alcayde. On April 8, 2008, BOC sold the property to Florentina Teyu and Domingo Teyu through a Deed of Absolute Sale. In reply, please be informed that pursuant to Section 2.57-1 (A) (6) of Revenue Regulations No. 2-98, as amended, 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 asset, 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 property is subject to the final withholding tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, as implemented by Revenue Regulations No. 2-98, as amended. As such, assignment 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 assignment 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. Moreover, a Deed of Assignment is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. (BIR Ruling No. 054-2000 dated January 31, 2000 citing BIR Ruling No. 174-90 dated September 10, 1990) aSACED Such being the case and since the transfer of rights over the above-mentioned realty in favor of Florentina Teyu and Domingo Teyu is not a transfer of the property itself, this Office is of the opinion as it hereby holds that the transfer is not subject to the capital gains tax under Sec. 24 (D) (1) of the 1997 Tax Code and creditable withholding tax imposed under Section 2.57-1 (A) (6) of Revenue Regulations No. 2-98, as amended. Moreover, the Deed of Assignment is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, but subject to the documentary stamp tax of P15.00 on certificates imposed under Section 188 of the same Code. It is understood however, that the sale of subject property by BOC to Florentina Teyu and Domingo Teyu is subject to the capital gains tax under Sec. 24 (D) (1) of the 1997 Tax Code and documentary stamp tax under Sec. 196 of the same Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service