Documentary Stamp Tax Computed Based on Deed of Absolute Sale Not on the Lease Purchase Agreement

April 7, 1999 BIR RULING NO. 045-99 194-196-000-00-045-99 Ramon F. Garcia & Company Suite 410 Manila Bank Building Ayala Avenue, Makati City Attention: Mr . Joselito F . Garcia Partner Gentlemen : This refers to your letter dated September 23, 1998 requesting for a ruling on whether the documentary stamp tax should be computed based on the Lease Purchase Agreement or on the Deed of Absolute Sale. It is represented that your client, Total Persons Care (TOPEC) Foundation, Inc.,had acquired a property on December 17, 1985 located at No. 4391 Montojo St.,Makati City; that on the later date of December, 1985, the said property was leased to Mr. Mariano Gabor, under a Lease Purchase Agreement in the amount of P180,000.00 payable on a monthly lease of P1,500.00; that in July of 1998, Mr. Gabor availed of the Lease Purchase Agreement; and that as a consequence, your said client executed a Deed of Absolute Sale effecting the sale transaction. In reply, please be informed that then Section 194 of the Tax Code, as amended [now also Section 194 of the Tax Code of 1997] provides that on each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000.00), or fractional part thereof, and an additional One peso (P1.00) for every One thousand pesos (P1,000.00) or fractional part thereof, in excess of the first Two thousand pesos (P2,000.00) for each year of the term of said contract or agreement. On the other hand, Section 196 of the same Code provides that on 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 rate of P15.00 based on the consideration or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed One Thousand Pesos (P1,000.00), and Fifteen pesos (P15.00) for each additional One Thousand Pesos (P1,000.00) or fractional part thereof in excess of One thousand pesos (P1,000.00) of such consideration or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, that when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration. From the foregoing of the Tax Code of 1997, it is clear the Lease Purchase Agreement executed by and between your client, TOPEC, and Mariano Gabor sometime in December, 1985, is subject to the documentary stamp tax imposed under Section 194 of the Tax Code, as amended [now also Section 194 of the Tax Code of 1997], while on the other hand, the subsequent Deed of Sale executed in July, 1998, is likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. In other words, both Lease Purchase Agreement and Deed of Absolute Sale are subject to the corresponding documentary stamp tax prescribed under the aforecited provisions of the Tax Code. Moreover, the tax base of documentary stamp tax due on the Deed of Absolute Sale shall, under Section 196 of the Tax Code of 1997, be based on the consideration or value received or contracted to be paid for such realty after making proper allowance of any encumbrance or on its fair market determined in accordance with Section 6(E) of the Tax Code of 1997 (zonal valuation), whichever is higher. Furthermore, under Section 4 of Revenue Regulations No. 8-98, a creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, paid to the seller/owner for the sale, transfer, or exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer in accordance with the following schedules: A. Upon the following values of real property, where the seller/ transferor is habitually engaged in the real business as per proof of registration with the HLURB or HUDCC: With a selling price of Five Hundred Thousand Pesos (P500,000.00) or less 1.5% With a selling price of more than Five Hundred Thousand Pesos (P500,000.00) but not more than Two Million Pesos (P2,000,000.00) 3.0% With a selling price of more than Two Million Pesos (2,000,000.00) 5.0% B. Where the seller/transferor is not habitually engaged in the real estate business 7.5% C. Where the seller/transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of Revenue Regulations No. 2-98 exempt. Such being the case, and since the property you sold in favor of Mr. Mariano Gabor is an ordinary asset considering that the same was being leased and therefore used in business, the sale thereof, is subject to the creditable withholding tax imposed under Section 4 of Revenue Regulations No. 8-98 implementing Section 57(B) of the Tax Code of 1997 based on the gross selling price / total amount of consideration or fair market value (zonal valuation) of the real property sold, whichever is higher. LibLex 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue