Proper Rate of Expanded Withholding Tax to be Paid Before a Certificate Authorizing Registration is Issued

May 28, 1998 BIR RULING NO. 080-98 100-000-00-080-98 MSA Math Tutoring Center 2nd Floor, Golden Crescent Mansion 90 Rosa Alvero Street, Loyola Heights Quezon City Attention: Mr . Manuel G . Martinez , Jr . Licensed REB , Liaison Gentlemen : This refers to your letter dated September 23, 1996 stating that Metropolitan Bank and Trust Company ("METROBANK"), a member of the Chamber of Real Estate & Builders Association, Inc. (CREBA), executed a Deed of Absolute Sale in favor of your company, MSA Group, Inc., (MSA) on September 4, 1996 covering a parcel of land located at Vista Verde Subdivision, Cainta, Rizal for a consideration of One Million Two Hundred Fifty Thousand Pesos (P1,250,000.00); that before said transaction was consummated, your company was given the assurance by BIR Revenue Region No. 7, Revenue District Office No. 46, Cainta/Taytay, Rizal, that your company had to pay only 3% Expanded Withholding Tax on the said transaction based on the total selling price of P1,250,000.00; that you consummated the aforesaid sale on October 4, 1996 and paid the creditable withholding tax of 3% due thereon and the corresponding 1.5% documentary stamp tax on the same date; that three days after you made such payment, the Chief of the Assessment Unit of RDO No. 7 informed you of the readjustment on the payment of the expanded withholding tax from the original 3% to 7.5%, citing the Memorandum of the Chief, Assessment Unit RDO No. 46, Cainta/Taytay, Rizal dated July 29, 1996 regarding the taxability of CREBA Member Banking Institutions; that said Memorandum raises the following issues: (1) whether or not CREBA members can be compelled to register as E-VAT taxpayers and pay VAT and/or (2) whether to disregard their CREBA Certificate and accept their assertion that they are not real estate dealers and hence, liable only to the 3% Expanded Withholding Tax on their sale of real property like any other ordinary corporation; that by reason of the said Memorandum, you were denied the issuance of the Certificate Authorizing Registration (CAR). prcd Based on the foregoing representations, you now request for a ruling as to the proper rate of expanded withholding tax your company should pay in order that the corresponding Certificate Authorizing Registration (CAR) will be issued in your favor. In reply, please be informed that Section 1 of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, otherwise known as the Expanded Withholding Tax Regulations, provides as follows: "Section 1. Income payments subject to creditable withholding tax and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines. "xxx xxx xxx (j) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange, or transfer of "xxx xxx xxx "2. Real property, other than capital asset, by an individual, estate, trust, trust fund or pension fund or real property, whether held as capital or ordinary asset, by a corporation (a) not registered with the HLURB as engaged in Socialized Housing projects under R.A. 7279: (b) the selling price thereof is over P500,000.00 but not over P2,000,000.00; and (c) the seller/transferor is habitually engaged in the real estate business three percent (3%)." Considering that the total selling price of the subject land amounts to P1,250,000.00 and the seller, METROBANK, is habitually engaged in the real estate business as shown by its Certificate of Accreditation issued by CREBA, your transaction is therefore subject to the 3% creditable withholding tax based on the gross selling price or total amount of consideration or its equivalent paid to the seller, METROBANK, and not to the 7.5% which is the tax rate imposed if the seller-corporation is not habitually engaged in the real estate business. Moreover, pursuant to then Section 100 of the Tax Code, as amended by Republic Act No. 7716, (now Sec. 105 of the Tax Code of 1997), sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller is subject to VAT (Sec. 4.100-1, Revenue Regulations No. 7-95). Hence, the sale of said land by METROBANK in favor of your company shall also be subject to 10% VAT. The VAT, being an indirect tax, may be shifted or passed on by the seller to you, as the buyer. 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. LLphil Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue