BIR Ruling No. 026-10

August 9, 2010 BIR RULING NO. 026-10 RR No. 2-98; BIR Ruling No. DA-(VAT-112) 765-09; DA-(C-177) 460-09; DA-641-04 Sta. Lucia Realty & Development, Inc. 3rd & 4th Flrs., Bldg. II, SLE Grand Mall, Marcos Hi-way cor Felix Ave., Cainta, Rizal 1900 Attention: Manuel M. Encarnado VP Corporate Communication Gentlemen : This refers to your letter dated June 15, 2010 requesting for the confirmation of your opinion that the sale by Sta. Lucia Realty & Development, Inc. of its Philippine Basketball Association (PBA) Franchise, including the Realtors Basketball Team, is not subject to (Expanded) Creditable Withholding Tax (CWT). CIcTAE It is represented that Sta. Lucia Realty & Development, Inc. is a corporation duly organized and existing under Philippine laws registered with the Securities and Exchange Commission under Certificate of Registration No. 44710. Under its Amended Articles of Incorporation, the primary purpose for which Sta. Lucia Realty & Development, Inc. was formed is " to buy, sell, deal in leasehold, improve, subdivide and otherwise dispose of lands, houses and buildings or any interest therein, and to construct on land owned by the corporation houses, buildings, roads, bridges, alleys, artesian wells, reservoirs, irrigation ditches, sewers, and all kinds of improvements. " It is further represented that in 1993, as part of the Company's marketing strategy to advertise the Sta. Lucia brand, it purchased a PBA Franchise. However, considering the high costs of maintaining a PBA Basketball Team and since the purpose for which the franchise was bought has already been achieved, the Sta. Lucia Realty & Development, Inc. is now selling the said PBA franchise, including the Realtors Basketball Team. In reply, please be informed that this Office has consistently held that transactions subject to the withholding tax scheme as enumerated in Revenue Regulations (RR) No. 2-98, as amended, are exclusive and income payments which are not among those specifically subject to withholding tax under RR No. 2-98, as amended are exempt from withholding tax. (BIR Ruling No. DA-(VAT-112) 765-09 dated December 10, 2009 citing BIR Ruling No. DA-086-07 dated February 13, 2007; BIR Ruling No. DA-128-08 dated March 5, 2008; BIR Ruling No. DA-121-05 dated April 6, 2005; BIR Ruling No. DA-075-05 dated March 9, 2005; BIR Ruling No. DA-029-06 dated February 2, 2006; BIR Ruling No. DA-113-07 dated February 22, 2007; BIR Ruling No. DA-625-04 dated December 10, 2004; BIR Ruling DA-353-98 dated July 28, 1998) . The sale of Sta. Lucia Realty & Development, Inc. of its intangible assets in the form of rights to its PBA franchise, including the Realtors Basketball Team, cannot be considered as the company's stock in trade or property held primarily for sale to customers in the ordinary course of its trade or business. Neither can its PBA franchise be classified as real property used in trade or business of the company. SHDAEC Thus, the sale of Sta. Lucia Realty & Development, Inc.'s rights to its PBA franchise, including the Realtors Basketball Team, is considered a sale of an intangible asset, not a sale of goods subject to 1% CWT or a sale of service subject to 2% CWT. Since the sale of a franchise constitutes a sale of an intangible, it is not subject to creditable withholding tax. (BIR Ruling No. DA-(C-177) 460-09 citing BIR Ruling No. DA-641-04 dated December 17, 2004) . However, any resulting gain from said sale of intangible asset shall be subject to income tax under Section 27 of the Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue