Sale by Individuals of their Agricultural Land Subject 5% Final Capital Gains Tax

April 4, 1997 BIR RULING NO. 041-97 21 (e) 000-00 41-97 Promenade Construction & Realty Development Corporation Roxas Blvd., cor. Ortigas St., Pasay City Attention: Atty . Cris S . Villarruz Legal Officer Gentlemen : This refers to your letter dated December 12, 1995 stating that on December 11, 1995, a Deed of Absolute Sale was executed in your favor by Messrs. Alejandro and Arturo Dorion, involving an agricultural land located in Sta. Rosa, Laguna with an area of 28,926 square meters and covered by TCT No. T-212163 for and in consideration of the total amount of P14,463,000.00; that said land shall be used as relocation site for squatters; that on the same date, the Deed of Absolute Sale was presented to Revenue District Office No. 57 in San Pedro, Laguna for payment of the corresponding capital gains tax and documentary stamp tax, but the BIR examiner who was the officer of the day insisted that the transaction is subject to the 7.5% expanded withholding tax and not to the 5% capital gains tax. Based on the foregoing representations, you are now requesting for a ruling as to whether the said sale by individuals of their agricultural land is subject to the 7.5% expanded withholding tax or to the 5% final capital gains tax imposed under Section 21(e) of the Tax Code. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains tax presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Field verification conducted by Revenue Officer II Segundino M. Mabute and Group Supervisors Arturo C. Castro of Revenue District No. 57, San Pedro, Laguna, disclosed that the agricultural land subject of the Deed of Absolute Sale executed between Messrs. Alejandro and Arturo Dorion and Promenade Construction and Realty Development Corporation has remained unproductive since 1991 and recommended that the sale of said agricultural land in your favor be treated as capital asset. Such being the case, since the agricultural land sold by Messrs. Alejandro and Arturo Dorion is a capital asset, the sale thereof is subject to the 5% capital gains tax imposed under Section 21(e) of the Tax Code, as amended and not to the 7.5% creditable withholding tax, imposed under Revenue Regulations No. 12-94 implementing Section 50(b) of the Tax Code, as amended. Moreover, the Tax Clearance for Capital Gains Tax (TCL) authorizing the registration of property in favor of the transferee by the Register of Deeds should be issued to the purchaser thru the Revenue District Officer of the revenue district where the transferors are registered. 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. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue