BIR Ruling No. 027-10

August 10, 2010 BIR RULING NO. 027-10 Sec. 196; RR 2-98; BIR Ruling No. 097-96 Meridian Group Investors Corporation 4th Floor, Sterling Place 2302 P. Tamo Ext. Makati City Attention: Ms. Fatima Lizarondo Manager-Operations Gentlemen : This refers to your letter dated October 12, 2009 stating that Meridian Group Investors Corporation (Meridian) is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 154789 dated August 30, 1988 with TIN 000-790-221-000; that it is organized primarily "To invest in, purchase, lease or otherwise acquire and own, hold, possess, use, assign, transfer, sell, exchange, or mortgage, lands and/or buildings of any or all kinds, such as but not limited to residential, commercial or industrial, erect or repair said buildings or other structures for sale, lease or otherwise deal in and/or dispose of real property as well as shares of capital stocks, stocks in trade or other personal property of every kind and description, except stock broker or dealer in securities and while the owner or holder of such properties, to exercise any or all powers, rights and privileges of ownership appertaining thereto." HEDSIc that Meridian is the registered owner in fee simple of several parcels of land located in Maguyam, Silang, Cavite, covered TCT Nos. T-6843, T-6845, T-6846, T-6833, T-6842, T-6847 and T-6844 all issued by the Registry of Deeds for the Tagaytay City; that on the other hand Cleanway Technology Corporation (Cleanway) is likewise a corporation organized and existing under the laws of the Philippines with principal office address at Herma Building, 94 Scout Rallos Street, Kamuning, Quezon City; that a proposed Contract to Sell will be entered into by Meridian, as the Seller, and Cleanway, as the Buyer, whereby the former will transfer to the latter the above-mentioned properties subject to the following terms and conditions, to wit: 1. The purchase price of the lots shall be P26,800,800.00, exclusive of VAT, payable in the following manner: a) Upon signing of the Contract, the Buyer shall deliver to the Seller the 30% full downpayment in the amount of P8,040,240.00; b) The balance of P18,760,560.00 shall be paid in thirty six (36) equal monthly installments without interest, in the amount of P521,126.67; 2. Upon execution of the Contract to Sell, the Real Property Taxes on the land shall be shouldered and paid by the Buyer. Provided, however, that the tax declaration of the land shall remain with the Seller until such time the former has completely and fully paid the purchase price of the land; 3. The title to the property subject of this sale shall remain in the name of the Seller until full payment of the consideration of the sale as well as payment of any sum of money due from Buyer under the terms and conditions of the Contract. After the aforesaid payments, Seller is duty bound to execute the deed of absolute sale of the subject property, free from liens and encumbrances, save and except the deed restrictions/conditions of Seller indicated in the Contract. aEHADT Based on the foregoing representations, you now request for an opinion that, in the case of deferred sale where the initial payment exceeds 25%,whether the documentary stamp tax due on the said sale shall be paid once the payment exceeds 25% or upon full payment and the subsequent execution of the Deed of Absolute Sale. In reply thereto, please be informed that Section 196 of the Tax Code of 1997 provides that "SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property. All conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted, assigned transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, 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 this Code, whichever is higher: . . ." Corollarily, Section 163 of Regulations No. 26, or Revised Documentary Stamp Tax Regulations which provides: "SECTION 163. Contract for sale of land. If contract for the sale of land vests title on the land and improvements thereon, it would be subject to taxation as a conveyance. If it does not vest title but contains only certain provisions for the giving of a deed in the future upon compliance with conditions precedent, it is not subject to tax." In the same vein, Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 17-2003, provides that "xxx xxx xxx For sale of property on installment basis or deferred payment basis where the Contract to Sell is always executed before the execution of the Deed of Sale, the said Contract to Sell must be attached to the Deed of Absolute Sale executed upon completion of the payments and the duly notarized original duplicate copy of both documents must be presented to the RDO having jurisdiction of the place where the property is located for validation of the correctness of payment of all applicable taxes before the issuance of CAR/TCL. IEAaST It is to be noted, however, that in case of sale of real property paid under installment payment or deferred payment basis, the payment of the documentary stamp tax (DST) shall accrue upon the execution of the Deed of Absolute Sale but the basis for the imposition thereof shall be the gross selling price or fair market value of the property, whichever is higher, as of the time of the execution of the Contract to Sell. xxx xxx xxx" Accordingly, in the instant case, the documentary stamp tax on the sale and the conveyance of real property as prescribed in Section 196 of the Tax Code of 1997, as amended, is payable only upon the execution of the Deed of Absolute Sale (BIR Ruling No. 97-96 dated September 6, 1996) . However, the Contract to Sell is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. 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