Request for Change of Basis of Charges for Required Fees/Taxes on Government Housing Project

January 3, 1991 BIR RULING NO. 001-91 21 (e) 175-90 001-91 Gentlemen : This refers to your letter dated December 13, 1990 stating that the sale of 41 hectares of Canlubang property registered in the name of the Spouses Ricardo and Maria Luisa Y. Teehankee covered by TCT Nos. 107712-107713 and 107734-107737 in your favor was consummated at an agreed purchase price of Eighty Pesos (P80.00) per square meter or at a total cost of P32,800,000.00 payable in two installments; that the said vendors being also the owners of another 41 hectares of land adjacent to the said properties sold in your favor, have agreed to sell the same; that said parcels of land are covered by TCT Nos. 107738-107743; that you likewise bought the said adjacent property with in the two year period after the execution of the Deed of Absolute Sale at the same purchase price of Eighty Pesos (P80.00) per square meter; that the BIR District Office, however, appraised the said adjacent property at P450.00 per square meter; that such appraisal will greatly affect the payment of capital gains tax due on the sale as a consequence of the tremendous increase in the valuation of the property in question applying the zonal valuation; and that the vendors have not and do not intend to contest the sale of land inspite of the increase in market value taking into consideration the target beneficiaries/clients of the purchased land are the less fortunate belonging to the lowest 30-50% of the income bracket as mandated under Executive Order No. 90. Based on the foregoing representations, and considering that the sale made was intended for government housing project being priced not on the basis of prevailing market values but more on the capacity to pay of target clientele, you now request in behalf of the sellers, the Teehankees, that the required fees/taxes to be charged be based on actual selling price of the lot and not on the zonal valuation of the property as determined by this Office, and a ruling on the applicability of Section 196 of the Tax Code on the tax due as a result of said sale. In reply, please be informed that under Section 21 (e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher, provided, that the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 21(a) or (e), of the same Code, at the option of the taxpayer. Such being the case, your acquisition of the aforementioned properties of the Spouses Teehankee rendered them liable to the 5% capital gains tax imposed under said Section 21 (e) of the Tax Code, as amended, which tax liability shall be determined either under Section 21(a) or (e) of the same Code, at their option. In case they elect the former, this Office shall issue the certification authorizing the transfer of title to you as the purchaser thereof. Sec. 7(a) (5), Revenue Regulations No. 8-79) On the other hand, in case they elect the latter, this Office hereby allows the registration of the deed of sale with the Register of Deeds concerned and consequently, the transfer of the property in your favor. Thereafter, upon submission of a new certificate of title in your name at which time payment of the property required can be effected, the Spouses Teehankee shall file the corresponding capital gains tax return within thirty (30) days from said submission of the certificate of title. You as the government entity concerned shall within the same period, withhold the capital gains tax due from the Spouses Teehankee and remit the same to this Bureau. (BIR Ruling No. 044-84) In this connection, it may be noted that this ruling applies only to sales of property in favor of the government wherein the contract stipulates that the seller shall not be paid until title to the property is transferred to the government. Moreover, this Office, realizing that it takes a considerable amount of sacrifice and fortitude on the part of the Spouses Teehankee to part with and dispose of their real property, especially at a price much lower than the current zonal valuation or market appraised value, and considering that the likelihood of understatement of consideration is remote in this case as the government, through your Office, is the purchaser of the said real properties of the Spouses Teehankee, the use of the actual consideration of P80.00 per square meter as basis in determining the capital gains tax liability of the Spouses Teehankee as a consequence of the aforesaid sale of their properties, is hereby granted as an exception to the policy of this Bureau, in relation to Section 21(e) of the Tax Code. Furthermore, the deed of sale executed for the purpose of said sale transactions are subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, based on the consideration or value received or contracted to be paid for such realty, which in this case is P80.00 per square meter. cdtech Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)