Whether Payment by the Government to San Antonio Development Corporation for Real Property Acquired by it Through Expropriation Proceedings is Subject to Withholding Tax

March 12, 1991 BIR RULING NO. 040-91 50 (a) 24 (e) 000-00 040-91 M a d a m : This refers to your letter dated March 5, 1991, requesting opinion as to whether the payment by the Government to your client, San Antonio Development Corporation for real property acquired by it through expropriation proceedings is subject to withholding tax. It is represented that your client is engaged in the realty business; that it is the owner of a 22,328 square meters property in Cebu which was acquired by the Government through the Export Processing Zone Authority (EPZA) in the exercise of its power of eminent domain; that EPZA took possession of the property in 1980 by virtue of a writ of possession issued by the Court of First Instance of Lapu-Lapu City; and that after a period of more than ten (10) years, the Government is now paying your client the amount of P1,339,680.00 as the "just compensation" for the property plus 6% interest in the amount of P233,903.20. In reply thereto, please be informed that the payment by the government of the amount of P1,339,680.00 representing "just compensation" for the property of your client which was the subject of an expropriation proceedings in 1980 is not subject to the creditable withholding tax on sales, exchanges or transfers of real properties consummated on or after January 1, 1990 under P.D. No. 7-90 clarifying Revenue Regulations Nos. 12-89 and 1-90 implementing Section 50(b) of the Tax Code because aside from the fact that the expropriation is in the nature of a compulsory sale to the State, the transfer of the property was effected in 1980. Moreover, since the 6% interest on the "just compensation" in the amount of P233,903.20 is not in the nature of an interest on Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangement, the same is not subject to the 20% withholding tax under Sec. 24(e) of the Tax Code as amended. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner