Mr. Joseph C. Chiombon

September 30, 2008 BIR RULING [DA-(I-025) 269-08] Mr. Joseph C. Chiombon Lot 6 Block 7 Capetown Street Vista Real Classica Old Balara Quezon City Sir : This refers to your letter dated July 9, 2008, which was referred to this Office by Revenue Region No. 7, Quezon City, by way of its 1st Indorsement dated September 3, 2008, requesting for the refund or the automatic application of the capital gains tax paid to your escrow account relative to the sale of your principal residence pursuant to Section 24 (D) (2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 13-1999, as amended by Revenue Regulations No. 14-2000. It is represented that Spouses Joseph C. Chiombon and Mary Catherine V. Chiombon (Spouses Chiombon) are the absolute and registered owners of a parcel of land together with the improvements thereon located in Quezon City covered by TCT No. N-177037 containing an area of 300 square meters; that on April 28, 2008, a Deed of Absolute Sale was executed by Spouses Chiombon in favor of Spouses Archimedes I. Pinos and Amce Marie B. Pinos (Spouses Pinos) whereby the former transferred to the latter the above-mentioned property for and in consideration of P3,950,000.00; that on April 30, 2008, Spouses Chiombon paid the capital gains tax due on the said sale in the amount of P278,866.20 as evidenced by the Development Bank of the Philippines BIR Tax Payment Deposit Slip Receipt No. 08-33440; and that in a Letter of Intent dated May 5, 2008, Spouses Chiombon declared that the proceeds of the sale will be used to build another house. In reply thereto, please be informed that Section 24 (D) (2) of the Tax Code of 1997, as amended, capital gains presumed to have been realized from the sale or disposition of principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition, shall be exempt from the capital gains tax imposed under Section 24 (D) (1) of the same Code, provided, that the historical cost or adjusted cost basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired, and that the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of your intention to avail of the tax exemption thus mentioned, and which can only be availed of once every ten (10) years. The same Section further provides that if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the selling price in order to determine the taxable portion for the purpose of computing the tax prescribed under Section 24 (D) (1) of the Tax Code of 1997. Under the foregoing circumstances, since the capital gains tax due on the said sale has already been paid instead of creating an escrow agreement with the Revenue District Office concerned and an accredited bank as prescribed in Revenue Regulations No. 13-99, the aforesaid capital gains tax cannot be refunded, notwithstanding that Spouses Chiombon has declared in a letter of intent that the proceeds from the sale shall be used to buy or construct a new principal residence as required under Section 24 (D) (2) of the Tax Code of 1997. This is so because Spouses Chiombon have 18 months or until October 2009 to prove to the satisfaction of the Commissioner that the proceeds thereof indeed been used in acquiring a new principal residence. IaEScC On the other hand, with respect to the automatic application of the capital gains tax paid to the escrow account as required under Revenue Regulations No. 13-99, as amended, the same is devoid of legal basis. Taxes cannot be subject of set-off or compensation because taxes are not in the nature of contracts between the parties but grow out of duty to, and are the positive acts of, the government the making and enforcement of which, the personal consent of individual taxpayers is not required. Accordingly, your request that the amount paid representing capital gains tax due from the sale of principal residence be deposited in an escrow account is hereby denied. 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 and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service