Issuance of CAR or TCL on Sale of Real Property on Installment

February 5, 1998 BIR RULING NO. 008-98 42-(b)-000-00-008-98 Baniqued & Baniqued Law Offices Suite 803, 8/F Jollibee Centre San Miguel Ave., Ortigas Centre Pasig City Attention: Atty . Carlos G . Baniqued Gentlemen : This refers to your letter dated November 21, 1997 stating that Unlad Resources Development Corporation (Unlad) owns three (3) parcels of land with an aggregate area of 15,404.60 square meters located at Edsa corner Thomas Benitez St., Quezon City and covered by Transfer Certificates of Title Nos. RT-71872 (271025), RT-71873(271027) and RT-71870(271028) issued by the Register of Deeds of Quezon City; that on July 22, 1987, Unlad entered into a Contract to Sell with Philippine Women's University (PWU) whereby Unlad contracted to sell to PWU on installment plan certain portions of the said parcels of land with an aggregate area of 14,279.60 square meters; that PWU subsequently assigned in favor of Jardine Edsa Properties, Inc. (Jardine Edsa) all of its rights and interests in and to the Contract to Sell; that on December 18, 1996 a Deed of Assignment of Rights over the Contract to Sell was entered into by and between PWU and Jardine Edsa; that by virtue of the execution of the Deed of Assignment of Rights over the Contract to Sell, Unlad and Jardine Edsa entered into a Deed of Absolute Sale of the same portions of the parcels of land covered by the Contract to Sell with PWU; that Jardine Edsa paid Unlad an amount representing the installments on the purchase price that remained unpaid under the Contract to Sell as of the date of the execution of the Deed of Absolute Sale between Unlad and Jardine Edsa; that Unlad owns two (2) other parcels of land with an aggregate area of 6,249.40 square meters also located at Edsa corner Thomas Benitez St., Quezon City and covered by Transfer Certificates of Title Nos. RT-71871 (271024) and RT-71869 (271026) issued by the Register of Deeds of Quezon City; that Unlad sold recently to Jardine Edsa the said parcels of land as well as the remaining unsold portions of the parcels of land covered by Transfer Certificates of Title Nos. RT-71872 (271025) and RT 71873 (271027) or an aggregate area of 7,374.40 square meters; that a second Deed of Absolute Sale was executed by the parties on December 18, 1996; that the purchase price is payable on installment as indicated in the latter Deed of Absolute Sale and the initial payments during the taxable period in which the sale occurred did not exceed 25% of the purchase price; that in both sale transactions between Unlad and Jardine Edsa, the documentary stamp tax due on each Deed of Absolute Sale was fully paid based on the consideration stipulated in the Deeds of Absolute Sale, net of value-added tax; that with respect to the credible expanded withholding tax required to be withheld by the buyer pursuant to Revenue Regulations No. 6-85, as amended, the buyer, Jardine Edsa, withheld 5% (Unlad being CREBA-registered) on the amount paid by it to Unlad under the first Deed of Absolute Sale representing the outstanding installments payable by PWU to Unlad under the Contract to Sell; that Jardine Edsa similarly withheld 5% on the first installment paid to Unlad under the second Deed of Absolute Sale; that in view of the payment of the documentary stamp taxes on both Deeds of Absolute Sale as well as of the creditable expanded withholding tax on the total consideration paid by Jardine Edsa to Unlad under the first Deed of Absolute Sale and on the installment payment made by the buyer under the second Deed of Absolute Sale, Unlad applied with the BIR RDO No. 33, Port Area, Manila for a CAR or a TCL to enable it to transfer the titles of the parcels of land embraced by the Deeds of Absolute Sale in the name of Jardine Edsa, the buyer; that Unlad was informed by RDO No. 33, being a pilot district, that it may issue a TCL only if the full amount of the creditable expanded withholding tax based on the entire selling price or consideration of the sale is paid as required by the new computerized system regardless of whether or not the sale is on installment basis. In connection therewith, you are requesting a ruling to the effect that (1) A Certificate Authorizing Registration (CAR) or a Tax Clearance (TCL) may be issued in a sale of real property on installment plan pursuant to the provisions of Section 42(b) of the NIRC upon payment of the applicable creditable expanded withholding tax based on the installment payment received as well as the documentary stamp tax due on the deed of sale; (2) The creditable expanded withholding tax and the documentary stamp tax on sales of real property shall be based on the consideration or selling price of the real property net of the 10% value-added tax; and (3) That the Revenue District Officer of RDO No. 33 Port Area, Manila be authorized and directed to issue a CAR or TCL covering the aforementioned transactions. In reply thereto, please be informed that pursuant to Revenue Regulations No. 1-90, as amended by Revenue Regulations No. 12-94, any sale, exchange or transfer of real property whether capital or ordinary asset by a corporation, which is habitually engaged in the real estate business as certified by the Chamber of Real Estate and Builders Association, Inc. (CREBA) and which is not registered with the HLURB as engaged in socialized housing projects under RA 7279 the selling price of which is over P2,000,000.00 shall be subject to a creditable withholding tax of 5% based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner. Revenue Regulations No. 1-90 as amended by Revenue Regulations No. 12-94 covers all types of sale, whether cash sale, sale on installment basis and sale on a deferred payment basis. Thus, sales on installment basis are subject to the creditable withholding tax under Revenue Regulations No. 12-94 based on their gross selling price. The Certificate Authorizing Registration (CAR) or a Tax Clearance Certificate (TCL) as the case may be, is issued upon presentation by the seller of proof of actual full payment of capital gains tax/ expanded withholding tax and documentary stamp tax due on the sale of real property. However, in sales on installment basis under Section 42 (b) of the Tax Code, as amended, the CAR or the TCL may be issued upon submission of the following: (1) Instrument of sale; (2) The withholding of tax payments under RR 1-90 as amended by RR 12-94 based on the gross selling price on installment payments made; and (3) Evidence of payment of the documentary stamp tax due on the sale of the real property. LLphil Moreover, the creditable expanded withholding and the documentary stamp taxes on sales of real property shall be based on the consideration or gross selling price exclusive of the 10% value-added tax (VAT). (BIR Ruling No. 109-97 dated October 20, 1997). This will serve as an authority for the Revenue District Officer of RDO No. 33, Port Area, Manila to issue a CAR or TCL on the aforesaid transaction. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue