National Steel Corporation - Sale of Real Property Taxable

January 15, 1993 BIR RULING NO. 037-93 NATIONAL STEEL CORPORATION SALE OF REAL PROPERTY TAXABLE 50 (a) 000-00 037-93 National Steel Corporation P.O. Box 631 MCC Makati, Metro Manila Attention: Mr . Rogelio G . Chan Senior Manager Corporate Services This refers to your letter dated September 11, 1992, in effect, requesting a confirmation of your opinion that you are not subject to the 5% creditable withholding tax on your sale of real property. You contended that you are not liable to pay income tax on your sale of real property because under your Expansion Reinvestment Allowance (ERA), all your income are reinvested back to the corporation in the form of stock dividend; and you did not realize any income on the sale of your properties in Bataan because the total proceeds of the sale will be remitted fully to the Asset Privatization Trust (APT) in payment of your account. cdtech In reply, please be informed that since you have been registered with BOI as a pioneer enterprise as early as November 23, 1982, your present level of income tax exemption is 10% pursuant to Article 46 (a) of R.A. No. 1789. Although under the Expansion Reinvestment Allowance (ERA), all your income are reinvested back in the form of stock dividend, it does not indicate grant of income tax exemption to you. Since exemption cannot be established by mere implication, but must be clearly expressed (Wander Mechanical Engineer Corporation vs. et. al. 64 SCRA 555), you are not entitled to exemption on gains realized in the sale of real property. Moreover, your tax exemption under R.A. No. 1789 does not include gains from the sale of your real property. For income tax purposes, gains from the sale of real property correspond to the difference between the fair market value of your property and the acquisition and improvement cost of the same. The fact that the total proceeds of your sale will be remitted to APT in payment of your account will not at all preclude your liability to pay income tax on profits in your operations, or on gains realized on the sale of your real property. Accordingly, notwithstanding the fact that under your existing Expansion Reinvestment Allowance (ERA) scheme you are required to reinvest all your income to NSC; or the fact that NSC will remit all of the proceeds to APT in payment of its account, NSC is still subject to the 5% creditable withholding tax on the sale of its real property pursuant to Section 50(a) of the Tax Code, as implemented by Revenue Regulations No. 12-89, as amended by Revenue Regulations No. 1-90. JOSE U. ONG Commissioner of Internal Revenue