BIR Ruling No. 013-12

January 4, 2012 BIR RULING NO. 013-12 Sections 27 (D) (5), 39 (A) (1), 109 (P) of the Tax Code, as amended; RR 7-2003; RR 16-2005; BIR Ruling No. 014-2003; VAT Ruling No. 034-2001 Jesus Baptist Conference Philippine Church, Inc. No. 74 M.R. Luna Street, Ph. 3 BF Homes Paraaque City Attention: Pastor Do Sang Oh Gentlemen : This refers to your letter dated May 31, 2011 requesting for tax exemption from the payment of Value-Added Tax (VAT) on sale of a parcel of lands. It is represented that Jesus Baptist Conference Philippine Church, Inc. is a religious corporation duly registered with the Securities and Exchange Commission with Company Registration No. CN200341615 dated November 25, 2003. Its primary purpose is "for the administration of its affairs, properties and temporalities". As such, Jesus Baptist Conference Philippine Church, Inc. is not engaged in the real estate business. Jesus Baptist Conference Philippine Church, Inc. is the registered owner of a four (4) parcels of land with improvements situated at Brgy. BF Homes, Paraaque City, covered by Transfer Certificate of Title (TCT) Nos. 161540, 161541, 161542 and 161543 with an area of 1,120 square meters ("Subject Property"). The Subject Property was used for worship and other religious activities. On April 28, 2011, Jesus Baptist Conference Philippine Church, Inc. sold the subject property to Matias Isidro de Borja Limaco because the aforesaid properties are no longer sufficient to house the growing membership and will transfer to another location. SacTAC In reply, please be informed that the term "capital asset" as negatively defined in Section 39 (A) (1) of the 1997 Tax Code, as amended, means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. Furthermore, Section 3 (4) of Revenue Regulations (RR) No. 7-2003 provides that all real properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real estate shall be considered as ordinary assets. As defined under Section 2 (g) of RR 7-2003, taxpayers engaged in the real estate business shall refer collectively to real estate dealers, real estate developers, and/or real estate lessors. A taxpayer whose primary purpose of engaging in business or whose Articles of Incorporation states that its primary purpose is to engage in the real estate business shall be deemed to be engaged in the real estate business for purposes of the regulations. Considering that Jesus Baptist Conference Philippine Church, Inc. is not a real estate dealer, real estate developer, and/or real estate lessor and its primary purpose is for the administration of its affairs, properties and temporalities. As such, Jesus Baptist Conference Philippine Church, Inc. is not engaged in the real estate business. Further, the aforesaid Subject Property is not used by Jesus Baptist Conference Philippine Church, Inc. in its trade or business nor held primarily for sale or lease to customers in the ordinary course of trade or business. (BIR Ruling No. 014-03 dated October 28, 2003) . Furthermore, in BIR Ruling No. 014-2003, dated October 28, 2003, it was ruled that for a property to be considered an ordinary asset, it must be actually used in the business of the corporation. It was likewise stated that on the condition that the taxpayer concerned was not habitually engaged in the real estate business, the property not actually used in the business of the taxpayer, was considered a capital asset. ATcEDS In view of the foregoing, it is the considered opinion of this Office that the income to be derived by Jesus Baptist Conference Philippine Church, Inc. from the sale of the Subject Property is not subject to the creditable/expanded withholding tax under Section 2.57.2 (J) of RR 2-98, as amended, but to the capital gains tax of six percent (6%) based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, whichever is higher, of such property pursuant to Section 27 (D) (5) of the same Code. Moreover, under Section 109 (P) of the Tax Code, as amended by RA 9337, the sale of real property not primarily held for sale to customers or held for lease in the ordinary course of trade or business shall be exempt from VAT. Considering that Jesus Baptist Conference Philippine Church, Inc.'s primarily purpose is for the administration of its affairs, properties and temporalities, the Subject Properties are not being held by Jesus Baptist Conference Philippine Church, Inc. primarily for sale to customers or held for lease in the ordinary course of trade or business. Hence, the sale by Jesus Baptist Conference Philippine Church, Inc. of the Subject Properties shall be exempt from VAT. (VAT Ruling No. 034-2001 dated June 13, 2001) Finally, the Deed of Sale conveying the above-mentioned Subject Property shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the same Code, whichever is higher. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. AETcSa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue