Whether the Basis of the Creditable Withholding Tax Should be the Consideration of the Sale as Appearing on Deed of Conditional Sale since Zonal Valuation was Not Yet Enforced at the Time

January 9, 1991 BIR RULING NO. 005-91 24 000-00 005-91 Gentlemen : This refers to your letter dated October 2, 1990 stating that a Deed of Conditional Sale was executed on February 27, 1987 by the Development Bank of the Philippines (DBP) and Mr. Felipe Papa covering an acquired property of the DBP located at 1731 E. Rodriguez Sr. Blvd., Quezon City; that the sale was to be paid over a term of two (2) years; that Mr. Felipe Papa fully paid the account on June 15, 1990 and a Deed of Absolute Sale was executed on July 6, 1990; that as assessed by the BIR per attached Authority to issue Payment Order dated July 7, 1990 the amount of P363,600.00 is payable, computed as follows: cdt Lot Area 808 sq. meters Zonal value per square meter P9,000.00 P9,000.00 x 808 sq. meters x 5% = P363,600.00 ========== that you are of the opinion that the basis of the creditable withholding tax should be the consideration of the sale which is P2,671,200.00 as appearing on Deed of Conditional Sale since zonal valuation was not yet enforced at the time; and that the creditable withholding tax should be computed as follows: 5% of P2,671,200.00 or P133,560.00 In reply thereto, please be informed that pursuant to Revenue Regulations No. 1-90, as amplified by Revenue Memorandum Circular No. 7-90, the basis of the withholding tax shall be the gross selling price or the total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of the real property. For purposes of the regulations, the term "Gross Selling Price" means the consideration stated in the sales document or the fair market value/zonal value, whichever is higher. Moreover, in case of the installment sales, only such amounts paid beginning in 1990 shall be subject to the withholding tax. This is in consonance with the rule that regulations shall apply prospectively. Thus, past installment payments made before 1990 should not be subject to the expanded withholding tax provision because the requirement was imposed only in January 1990. Considering that the fair market value/zonal value of the aforementioned property is higher than its gross selling price or the consideration stated in the sales document, the basis of the creditable withholding tax under Revenue Regulations No. 1-90 is the fair market value/zonal value of the property. Accordingly, the computation of the BIR on the basis of the creditable withholding tax appearing in the Authority to Accept Payment is correct. Furthermore, this Office has issued Revenue Audit Memorandum Order Nos. 3-86, 3-86A, 2-87 and 3-87 on real property valuation pending final determination of zonal values of real properties for internal revenue tax purposes. Very truly yours, (SGD.) JOSE U. ONG Commissioner