Installment Payments of the Balance of the Contract Price of Real Properties Sold by Extra Ordinary Development Corporation Not Subject to VAT Since the Transaction is Treated as Cash

July 30, 1996 BIR RULING NO. 085-96 RR 7-95; 100 (a) 000-00 085-96 Ms. Rhodora L. Trinidad 7th Flr., Dolmar Gold Tower C. Palanca St., Legaspi Village Makati City M a d a m : This refers to the letter dated February 20, 1996 jointly signed by you and your sister, requesting information as to whether or not installments payments after January 1, 1996 of the balance of the contract price of the real properties sold by Extra Ordinary Development Corporation are subject to VAT. cdt You have represented that in December 1994, you and your sister paid reservation fees in the respective amounts of P19,292.00 and P10,000.00 for two (2) residential lots in Park Place Village the features of the sale are as follows: 1st Lot 2nd Lot Contract price P 503,287.20 P 321,600.00 Down Payments 116,143.20 77,184.00 Mo. amortization 10,473.97 6,612.43 Terms 5 years 5 years that the down payment for the 1st was completed on January 12, 1995 and the contract to sell executed on January 19, 1995 while down payment for the 2nd lot was completed in March 1995 and a contract to sell immediately executed thereafter; and that so far you were able to pay the monthly amortizations on time and as of December 31, 1995, have paid P231,354.89 for the first lot inclusive of the down payment and P130,083.44 for the 2nd lot inclusive of the down payment. In reply, please be informed that on the basis of the foregoing facts, the sale to you and your sister of the real properties in question by Extra Ordinary Development Corporation is a sale on a deferred payment basis since your initial payments after the execution of the contract of sale and monthly amortizations thereafter exceed 25% of the contract price. Pursuant to SEC. 4.100-1 of Revenue Regulations No. 7-95, "sale of real property by a real estate dealer on a deferred payment basis, not on installment plan, means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross selling price. On the other hand, "initial payments" means payment or payments which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the year when the sale or disposition of the real property was made. It covers any down payment made and includes all payments actually or constructively received during the year of sale, the aggregate of which determines the limit set by law." Such being the case, your subsequent payments of the balance of the contract price for the two (2) lots on or after January 1, 1996 shall no longer be subject to VAT since the transaction is treated as cash. In short, Extra Ordinary Development Corporation as real estate dealer should not charge you and your sister the 10% value-added tax imposed under Section 100 (a) of the Tax Code, as amended by R.A. No. 7716. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue