BIR Ruling No. 079-14

March 4, 2014 BIR RULING NO. 079-14 Secs. 108, 163, 188, 196, R.A. No. 8424; Rev. Regs. 2-98, 17-2003; BIR Ruling No. 027-2010 Household Development Corporation 3rd Level Starmall Las Pias, CV Starr Avenue, Philamlife Village, Pamplona, Las Pias City Attention: Ms. Maribeth C. Tolentino President Gentlemen : This refers to your letter dated March 7, 2013 requesting for a ruling confirming your opinion that the payment of documentary stamp tax (DST) by HOUSEHOLD DEVELOPMENT CORPORATION on its sale transaction is correct and proper pursuant to the provisions of Revenue Regulations No. 17-2003. It is represented that HOUSEHOLD DEVELOPMENT CORPORATION, (the "Buyer") a duly registered domestic corporation with TIN 001-221-703, entered into an Agreement to Purchase and Sell ("ATPS") with TWENTY TWO REALTY AND DEVELOPMENT CORPORATION (the "Seller") on June 29, 2012 covering the sale of two (2) parcels of land both located in Barangay Ususan, Taguig City, Metro Manila. One parcel registered under Transfer Certificate of Title (TCT) No. 36751 has an area of 18,419 square meters while the other, albeit unregistered, is covered by Tax Declaration No. GL-011-1500 and has an area of 1,096 square meters. Pursuant to the stipulations in the ATPS, the Buyer shall pay an initial down payment equivalent to fifty percent (50%) of the agreed purchase price and the balance shall be payable in two quarterly installments. On the same date, the Buyer remitted in full the 6% creditable withholding tax (CWT) based on the total consideration net of value-added tax since the initial payment is already 50% of the total consideration. On February 8, 2013 the parties executed a Deed of Absolute Sale for the parcel of land covered by TCT No. 36751 after the full payment of the purchase price. The corresponding DST on the Deed was paid on February 15, 2013. Based on the foregoing representations, you now request for an opinion on whether the payment of the DST on the sale and the conveyance of real property as prescribed in Section 196 of the National Internal Revenue Code of 1997, as amended (NIRC), after the execution of the Deed of Absolute Sale with the selling price on the ATPS as basis is correct and proper. aCcADT In reply thereto, please be informed that Section 196 of the NIRC, provides that "SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property. 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 rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: . . ." Corollary, Section 163 of Regulations No. 26, or Revised Documentary Stamp Tax Regulations which provides: "SEC. 163. Contract for sale of land. If contract for the sale of land vests title on the land and improvements thereon, it would be subject to taxation as a conveyance. If it does not vest title but contains only certain provisions for the giving of a deed in the future upon compliance with conditions precedent, it is not subject to tax." In the same vein, Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 17-2003, provides that "xxx xxx xxx For sale of property on installment basis or deferred payment basis where the Contract to Sell is always executed before the execution of the Deed of Sale, the said Contract to Sell must be attached to the Deed of Absolute Sale executed upon completion of the payments and the duly notarized original duplicate copy of both documents must be presented to the RDO having jurisdiction of the place where the property is located for validation of the correctness of payment of all applicable taxes before the issuance of CAR/TCL. It is to be noted, however, that in case of sale of real property paid under installment payment or deferred payment basis, the payment of the documentary stamp tax (DST) shall accrue upon the execution of the Deed of Absolute Sale but the basis for the imposition thereof shall be the gross selling price or fair market value of the property, whichever is higher, as of the time of the execution of the Contract to Sell. xxx xxx xxx" Considering that the terms of payment on the sale transaction between HOUSEHOLD DEVELOPMENT CORPORATION and TWENTY TWO REALTY AND DEVELOPMENT CORPORATION is on installment basis as stipulated in the ATPS and that the CWT due thereon has been paid, accordingly, the DST on the sale and the conveyance of real property as prescribed in Section 196 of the NIRC, is payable only upon the execution of the Deed of Absolute Sale (BIR Ruling No. 027-10 dated August 10, 2010) and the basis for the imposition thereof shall be the gross selling price or fair market value of the property, whichever is higher, as of the time of the execution of the ATPS pursuant to Revenue Regulations No. 17-2003. DAcSIC However, it should be noted that the ATPS is subject to the DST of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-10 dated August 10, 2010) 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