Basis of Creditable Withholding Tax on Sale of Property Where 30% Downpayment Was Paid

January 22, 1999 BIR RULING NO. 011-99 RR 1-90-000-00-011-99 Atty. Celia C. King Revenue District Officer Bureau of Internal Revenue Revenue Region No. 7 Mandaluyong City M a d a m : This refers to your letter dated November 2, 1998 requesting for an opinion as to the basis of the creditable withholding tax to be imposed on the sale of a property wherein a downpayment equivalent to 30% of the contract price was paid at the time the Contract to Sell was executed. cdll It is represented that on December 29, 1995, the Contract to Sell #C230167 involving City Square Pioneer Condominium No. 715 was executed between Cityland and Helen Lorenzo; that on the same date an equivalent 30% of the contract price was duly paid as downpayment; that under Rev. Regs. 1-90, the foregoing sale is considered as cash sale to be reported as part of Cityland's gross income for 1995; that while Cityland had duly complied with the requisites of Rev. Regs. 1-90 on expanded withholding tax (EWT), it paid only the EWT of 3% based on the initial downpayment and not on the gross selling price of P1,283,620.50; that Cityland presented BIR Ruling No. 078-94 issued to E.L. Punsalan & Associates as its basis for paying only the EWT based on the downpayment, and which categorically states that " they are subject to creditable withholding tax based on the Gross selling price or total amount of consideration or its equivalent paid to the seller/owner . Revenue Regulations No . 1-90 covers all types of sale , i . e ., cash sale , sale on installment basis and sale on a deferred payment basis . Thus , even if the aforementioned sales of your clients condominium units are on deferred payment basis , the sales are still subject to the creditable withholding tax under Revenue Regulations No . 1-90 based on their gross selling price ."; that Cityland is invoking said BIR Ruling No. 78-94 for your Office to issue the corresponding Certificate Authorizing Registration since accordingly it had already complied with documentary requirements imposed thereat; and that while it was so, the said BIR Ruling No. 78-94 was, however, modified by BIR Ruling No. 019-96 dated February 20, 1996, which states that the EWT should be at gross selling price and not on the downpayment. Hence, this request. In reply, please be informed that pursuant to Rev. Regulations 1-90, the sale, exchange or transfer of real property whether capital or ordinary asset by a corporation which is habitually engaged in the real estate business, certified as such by the Chamber of Real Estate Builders Association, Inc. (CREBA) and who is registered with HUDCC shall be subject to a creditable withholding tax of two and one-half percent (2.5%) based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner . The said Revenue Regulations No. 1-90 covers all types of sale, i.e., cash sale, sale on installment basis and sale on a deferred payment basis. (BIR Ruling No. 78-94 dated March 18, 1994) llcd The above pronouncement as to the basis of the expanded withholding tax (EWT) was clarified in BIR Ruling No. 019-96, i.e., the entire gross selling price and not only on the initial or downpayments if the initial or downpayments in the year of sale exceed twenty-five percent (25%). A perusal of the abovementioned BIR Rulings revealed that the pronouncements made therein likewise hold true in the instant case considering that the transaction entered into between Cityland and Helen Lorenzo was categorically considered as cash sale there being paid a downpayment equivalent to 30% of the contract price. It must be noted that BIR Ruling No. 078-94 did not specifically rule that the creditable withholding tax of 2.5% mandated under Rev. Regs. 1-90 (now on schedular basis under 2.57.2(J) of Rev. Regs. 2-98) should be based on the downpayment made (i.e., 30% in the case at hand). Rather, as stated, the creditable withholding tax should be based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner . Categorically, the term "downpayment" is not equal to the gross selling price or the total amount of consideration or its equivalent paid to the seller/owner since it is actually a portion of the whole (i.e., of the gross selling price or the total amount of the consideration or its equivalent). The alternative use of the terms "gross selling price" or "total consideration or its equivalent paid to the seller/owner" is necessary to comprehend the payment other than money made by the buyer which, in all intents, forms part of the consideration or selling price and for which the equivalent value thereof shall be considered in computing the creditable withholding tax. Thus, in all instances, whether the basis is denominated as gross selling price or total amount of consideration or its equivalent, if initial payment thereof is equivalent to 25% or more, the transaction is considered as cash sale for which the corresponding rate of the creditable withholding tax prescribed shall be withheld based not on the amount initially paid (downpayment) but on the gross selling price or total consideration or its equivalent paid to the seller/buyer. There is nothing inconsistent between BIR Ruling Nos. 078-94 and 19-96 and Rev. Regs. No. 1-90 insofar as the basis of the EWT is concerned. In fine, if Cityland invoked BIR Ruling No. 078-94 then there is more cogent reason that it should have paid the EWT based on the gross selling price or total amount of the consideration or its equivalent at the rate prescribed in Rev. Regs. 1-90 considering that whenever a 30% downpayment is paid the transaction is categorized as cash sale. Further, the use of the phrase "or the total amount of consideration or its equivalent paid to the seller", as earlier explained, implies a situation wherein the consideration (which could also be the contract or selling price) could be both in money and in kind such as property, labor etc., in which case, the value of the same shall be considered and added together to arrive at the total or gross selling price or total consideration received. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue