BIR Ruling No. 078-14

March 4, 2014 BIR RULING NO. 078-14 RA 7279; RA 7160; BIR Ruling No. 640-12; BIR Ruling No. 360-13 Danilo B. Baello Attorney-in-Fact 426-A, Mabini St., Caloocan City Sir : This refers to your letter dated June 18, 2013 which was received by this Office on June 19, 2013 requesting for an exemption from the payment of capital gains tax under Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992, as implemented by Revenue Regulations No. 11-1997, as amended by Revenue Regulations No. 17-2001. Documents submitted disclosed that the Baello Family are the absolute registered owners of three (3) parcels of land in Brgy. 12 Dagat-Dagatan, Caloocan City covered by Transfer Certificate of Title Nos. 387219, 346301, and 346298; that the registered owners agreed to sell Seven Thousand Six Hundred Ninety Two square meters (7,692 sq.m.) portion of the foregoing lots for a total consideration of Twenty Two Million Nine Hundred Two Thousand Two Hundred Fifty Pesos (P22,902,250.00) to wit: Registered Owner Transfer Certificate Total Area Sold to NHA of Title No. C-387219 2,717.00 sq.m. 2,575.00 sq.m. Danilo B. Baello 1,461.00 sq.m. 1,439.00 sq.m. Virgilio B. Baello 648.00 sq.m. 684.00 sq.m. Wilhelmina B. Baello 572.00 sq.m. 452.00 sq.m. C-346301 3,347.00 sq.m. 2,243.00 sq.m. Danilo B. Baello 384.00 sq.m. 0.00 sq.m. Gloria G. Baello 329.22 sq.m. 243.94 sq.m. Alberto G. Baello Jr. 329.22 sq.m. 243.94 sq.m. Shirley G. Baello 329.22 sq.m. 243.94 sq.m. Maritess G. Baello 329.22 sq.m. 243.94 sq.m. Imelda G. Baello 329.22 sq.m. 243.94 sq.m. Jeanette G. Baello 329.22 sq.m. 243.94 sq.m. Helen R. Baello 329.22 sq.m. 259.78 sq.m. Arnel R. Baello 329.23 sq.m. 259.78 sq.m. Noel R. Baello 329.23 sq.m. 259.80 sq.m. C-346298 4,103.00 sq.m. 2,874.00 sq.m. Danilo B. Baello 560.00 sq.m. 0.00 sq.m. Reynaldo T. Baello 508.00 sq.m. 478.83 sq.m. Cynthia T. Baello 508.00 sq.m. 478.83 sq.m. Editha T. Baello Jr. 508.00 sq.m. 478.83 sq.m. Marissa T. Baello 508.00 sq.m. 478.83 sq.m. Francisco T. Baello Jr. 508.00 sq.m. 478.84 sq.m. Felicitas T. Baello 509.00 sq.m. 479.84 sq.m. Gloria G. Baello 54.90 sq.m. 0.00 sq.m. Alberto G. Baello Jr. 54.90 sq.m. 0.00 sq.m. Shirley G. Baello 54.90 sq.m. 0.00 sq.m. Maritess G. Baello 54.90 sq.m. 0.00 sq.m. Imelda G. Baello 54.90 sq.m. 0.00 sq.m. Jeanette G. Baello 54.90 sq.m. 0.00 sq.m. Helen R. Baello 54.89 sq.m. 0.00 sq.m. Arnel R. Baello 54.88 sq.m. 0.00 sq.m. Noel R. Baello 54.88 sq.m. 0.00 sq.m. that the said portions of the land purchased by the National Housing Authority (NHA) from the Baello family are covered by a Memorandum of Agreement dated February 25, 2013 it executed with the Baello family and the beneficiaries, P2F2 United Residents Association (PEFURA), Inc.; that this transaction was approved by the National Housing Authority Board of Directors under Resolution 5519 dated November 19, 2012; and that in support of your request, the following documents have been submitted: HcDaAI 1. Request/Application letter dated June 18, 2013; 2. Deed of Conveyance; 3. Duly Certified Masterlist of beneficiaries; 4. Certified Electronic Copy of Transfer Certificate of Title Nos. 387219, 346301, and 346301; and 5. Memorandum of Agreement dated February 28, 2013; and 6. Certified True Copy of Resolution 5519. In reply thereto, please be informed that Section 20 of RA No. 7279 provides that, viz. : "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx "(d) Exemption from the payment of the following: (1) . . . (2) Capital gains tax on raw lands used for the project; xxx xxx xxx" The landowners who sold their property for use in socialized housing project are exempt from the payment of capital gains tax. Such being the case, the sale of the aforementioned property, with respect to the 7,692 square meters area for use in its socialized housing project is exempt from capital gains tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of NATIONAL HOUSING AUTHORITY (NHA) shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to R.A. 7279. Moreover, pertinent portions of Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: ESacHC (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. xxx xxx xxx It must be noted that the exemption from the documentary stamp tax of NHA, in connection with any of its socialized housing projects, extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by the Baello Family to NHA of the Seven Thousand Six Hundred Ninety Two Square meters (7,692 sq.m.) portion of the three parcels of land is, likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 360-2013 dated September 30, 2013) It is however, understood that this ruling is never intended and shall not be construed as giving authority to the covered Register of Deeds to effect the transfer of the land titles in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR). The CAR shall only be issued after the submission of the requirements provided under Revenue Memorandum Order (RMO) No. 15-2003. (BIR Ruling No. 640-12 dated December 4, 2012 citing BIR Ruling No. 040-10 dated August 27, 2010) Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit that the actual occupants of the properties transferred under the socialized housing project are qualified beneficiaries and therefore, the sellers are entitled to exemption from capital gains tax or income tax imposed under 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