Atty. Lhoritess Loreto-Collado

November 24, 2008 BIR RULING [DA-(I-038) 456-08] Atty. Lhoritess Loreto-Collado iRekrut Manpower, Inc. 4th Floor Casman Building 1198 Quezon Avenue Quezon City Madam : This refers to your letter dated October 10, 2008 requesting for a ruling on whether or not there is substantial compliance with the withholding tax requirements for the sale of the hereunder mentioned properties. HTaSEA Factual Background Spouses Rolando and Justina Cruz (Spouses Cruz) A parcel of land together with the improvements thereon, located at Montalban, Rizal, Covered by TCT No. 452198 issued by the Registry of Deeds for Marikina City was sold to Spouses Cruz. The sale was declared and paid during the taxable year of sale. On November 29, 2007, Spouses Cruz already paid the required 25% down payment and a Contract to Sell was executed belatedly signed on February 11, 2008, by Premiere Bank, as the Seller, and Spouses Cruz, as the Buyer, to purchase the above-mentioned property. The contract stipulated that payment of the purchase price shall be divided into several payments which are embodied in the Contract to Sell. Following the usual routine, the Bank declared the sale on its 2007 income tax return and paid for the income taxes due thereon even before complete receipt of the full purchase price. On September 19, 2008, a Deed of Absolute Sale was executed by the Bank in favor of Spouses Cruz, since in the said Contract to Sell and Deed of Absolute Sale, it was stipulated that the payment of capital gains tax, withholding tax and documentary stamp tax shall be shouldered by the Bank, Spouses Cruz did not withhold the corresponding taxes on the said sale. Spouses Lito and Neriza Pascual (Spouses Pascual) A parcel of land together with the improvements thereon located at Marikina City and covered by TCT No. 462980 issued by the Registry of Deeds for Marikina City was sold to Spouses Pascual. The sale was declared and paid during the taxable year of sale. On June 14, 2005, a Contract to Sell was executed by Premiere Bank, as Seller, and Spouses Pascual, as the Buyer, to purchase the above-mentioned property. The contract stipulated that payment of the purchase price shall be divided into several payments which are embodied in the Contract to Sell. Following the usual routine, the Bank declared the sale on its 2006 income tax return and paid for the income taxes due thereon even before complete receipt of the full purchase price. On September 24, 2008, a Deed of Absolute Sale was executed by the Bank in favor of Spouses Pascual, since in the said Contract to Sell and Deed of Absolute Sale, it was stipulated that the payment of capital gains tax, withholding tax and documentary stamp tax shall be shouldered by the Bank, Spouses Pascual did not withhold the corresponding taxes on the said sale. ISCaDH Spouses Chito and Socorro Natalia Grace Fabareir (Spouses Fabareir) A parcel of land together with the improvements thereon located at 909 Captain Magtoto Street, Barangay Old Zaniga, Mandaluyong City and covered by TCT No. 16860 issued by the Registry of Deeds for Mandaluyong City was sold to Spouses Fabareir. The sale was declared and paid during the taxable year of sale. On December 13, 2005, a Contract to Sell was executed by Premiere Bank, as Seller, and Spouses Fabareir, as the Buyer, to purchase the above-mentioned property. The contract stipulated that payment of the purchase price shall be divided into several payments which are embodied in the Contract to Sell. Following the usual routine, the Bank declared the sale on its 2005 income tax return and paid for the income taxes due thereon even before complete receipt of the full purchase price. On July 14, 2008, a Deed of Absolute Sale was executed by the Bank in favor of Spouses Pascual, since in the said Contract to Sell and Deed of Absolute Sale, it was stipulated that the payment of capital gains tax, withholding tax and documentary stamp tax shall be shouldered by the Bank, Spouses Fabareir did not withhold the corresponding taxes on the said sale. Spouses Romeo and Raquel Ona (Spouses Ona) A parcel of land together with the improvements thereon located at Lot 2 Block 19 King Solomon Street, Maypajo, Caloocan City and covered by TCT No. 321260 issued by the Registry of Deeds for Caloocan City was sold to Spouses Ona. The sale was declared and paid during the taxable year of sale. On July 14, 2003, a Contract to Sell was executed by Premiere Bank, as Seller, and Spouses Ona, as the Buyer, to purchase the above-mentioned property. The contract stipulated that payment of the purchase price shall be divided into several payments which are embodied in the Contract to Sell. Following the usual routine, the Bank declared the sale on its 2004 income tax return and paid for the income taxes due thereon even before complete receipt of the full purchase price. On September 19, 2008, a Deed of Absolute Sale was executed by the Bank in favor of Spouses Ona, since in the said Contract to Sell and Deed of Absolute Sale, it was stipulated that the payment of capital gains tax, withholding tax and documentary stamp tax shall be shouldered by the Bank, Spouses Ona did not withhold the corresponding taxes on the said sale. AICHaS Based on the foregoing representations, you now request for confirmation of your opinion that since the income taxes for the sales constitute more than the withholding, taxes due on the transactions, and said income taxes were duly declared and paid corresponding to their taxable years, before actual and complete receipt of the purchase prices, such payment is deemed substantial compliance with the withholding tax requirements and that the corresponding CARs may now be issued without requiring the payment of the aforesaid tax. In reply thereto, please be informed that this Office had already ruled on the matter when it said in BIR Ruling No. DA 225-2003 dated July 16, 2003 , as follows ". . . since the gain realized by Primex Realty Corporation from the sale has already been reflected in its income tax return in the year of sale, there is substantial compliance with Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, implementing Section 50(b) of then Tax Code, as amended. Such being the case, the RDO can now issue the corresponding CAR without requiring the payment of the creditable withholding tax by the buyer." Considering that the above-cited ruling is in all fours similar to the instant case, this Office hereby confirms your opinion that since the income taxes for the said sales were duly declared and paid corresponding to their taxable years even before the actual and complete receipt of the purchase prices by the said Corporation, there is substantial compliance with the withholding tax requirements. Consequently, the RDO concerned may now issue the corresponding CARs so that titles to the properties may now be transferred in the name of the aforesaid buyers. 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. HSEcTC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service