Mrs. Joselyn Z. Paglinawan

October 21, 2008 BIR RULING [DA-(I-029) 323-08] 24 (D) (1); 196; RR 2-98; DA-054-2000 Mrs. Joselyn Z. Paglinawan No. 5, Galaxy Street, Pilderas 2 Concorde Village, Pasay City M a d a m : This refers to your letter dated October 3, 2008 requesting in effect, for a ruling that the transfer of rights over a realty in favor of Carlo Jay Z. Paglinawan, Celine Ann Z. Paglinawan and Camille Jo Z. Paglinawan from the buyer-trustee is exempt from payment of the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. Documents submitted disclosed that Ads Lite, Incorporated is a family owned corporation engaged in the advertising business; that it has never operated since the time of its inception due to lack of capitalization, it has only P125,000.00 funds coming from the initial payments of the incorporator's subscriptions; that Ads Lite, Incorporated bought three (3) condominium units from City and Land Developers, Inc. and Cityland Development Corporation by executing three (3) separate Contract to Sells dated January 25, 2005 for the Pacific Regency Project and May 3, 2005 for the two units in Rada Regency Project; that the funds used to pay the downpayments of the foregoing properties were coming from the corporate funds of Ads Lite, Incorporated and the balance thereof were provided by Carlo Jay Z. Paglinawan, Celine Ann Z. Paglinawan and Camille Jo Z. Paglinawan who also continued to pay the amortizations of the said condominium units pro rata; that Carlo Jay Z. Paglinawan, Celine Ann Z. Paglinawan and Camille Jo Z. Paglinawan reimbursed the amount of P125,000.00 to Ads Lite, Incorporated, used as downpayment of the purchase of the three condominium units, hence, the execution of three (3) separate Deeds of Assignment with Assumption of Obligations by Ads Lite, Incorporated in favor of the above three individuals who are the true buyers of the condominium units as follows: CSaHDT 1) To Carlo Jay Z. Paglinawan Pacific Regency, Unit 3823; 2) To Celine Ann Z. Paglinawan Rada Regency, Unit 2225; 3) To Camille Jo Z. Paglinawan Rada Regency, Unit 2226. 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 assets, 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 properties are 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; hence, assignments 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 assignments 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). Such being the case and since the transfers of rights over the abovementioned realties by Ads Lite, Incorporated in favor of Carlo Jay Z. Paglinawan, Celine Ann Z. Paglinawan and Camille Jo Z. Paglinawan, are without monetary consideration as the amount received by Ads Lite, Incorporated was only a reimbursement of the amount it paid to City and Land Developers, Inc. and Cityland Development Corporation, this Office therefore is of the opinion as it hereby holds that the three (3) separate Deeds of Assignment with Assumption of Obligations executed by Ads Lite, Incorporated in favor of the above individuals are not subject to the final withholding tax imposed under Section 2.57-1 (A) (6) of Revenue Regulations No. 2-98, as amended. Moreover, the three Deeds of Assignment with Assumption of Obligations are 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. 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. ADaEIH Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service