Non-applicability of the 5% Creditable Withholding Tax to Sale of Real Property Where the Last Installment was Paid in 1986

May 21, 1991 BIR RULING NO. 089-91 50 (b) 052-90 089-91 Gentlemen : This refers to your letter dated January 29, 1991 requesting confirmation of the opinion of the Philippine National Bank Provident Fund (PNB Provident Fund) that its sale of real property on installment basis to its members who are PNB employees is not subject to the 5% creditable withholding tax imposed under Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 where the last installment was paid on October 31, 1986 but the covering Deed of Sale was executed on May 23, 1990. It is represented that PNB Provident Fund is an employee's trust established by the PNB Board of Director's pursuant to Section 11(f) of Executive Order No. 80; otherwise known as the 1986 Revised PNB Charter; that it entered into a Deed of Conditional Sale with its members, Susita R. Hermoso, covering the purchase of a parcel of land with an area of 480 square meters located in Quezon City and covered by TCT No. 147172 which was issued in the name of PNB as trustee of the PNB Provident Fund; that the consideration of the sale was P23,195.30 payable for a period of fifteen (15) years with the interest on the principal at the rate of six (6%) per cent per annum , at a monthly amortization of P211.97 deductible from the salary of Ms. Hermoso from PNB; that the Deed of Conditional Sale bears no date and was not notarized; that Ms. Hermoso, however, started paying the installments of the purchase price in 1971 and paid the last installment on October 31, 1986; that on May 23, 1990, a Deed of Absolute Sale covering the above property was executed by and between PNB in its capacity as trustee of the PNB Provident Fund and Ms. Hermoso; that while the last installment payment of Ms. Hermoso was made on October 31, 1986, the PNB Provident Fund erred in continually deducting the same installment payments from her salary until the error was detected by Ms. Hermoso in January 1990; that PNB Provident Fund refunded to Ms. Hermoso her overpayments for four years and thereafter prepared the said Deed of Absolute Sale; that when the Deed of Absolute Sale was presented to the Assistant Revenue District Officer of North Quezon City the same was assessed in the amount of P21,600.00 for expanded withholding tax; that as a consequence, PNB Provident Funds submitted an affidavit to the effect that PNB Provident Fund which is an employee's trust created for the benefit of PNB employees is tax-exempt under Section 53 (b) of the Tax Code; that despite of the said affidavit the Assistant Revenue District Officer refused to issue a Certificate Authorizing Registration (CAR) without payment of the creditable withholding tax and suggested that the issue be referred for a ruling in the BIR Head Office; and that PNB Provident Fund is of the opinion that the sale transaction is not subject to the creditable expanded withholding tax on the following grounds: (1) That under Revenue Memorandum Circular No. 7-90 the Revenue District Officer may issue the CAR without the payment of the creditable withholding taxes where the taxpayer can clearly prove that there was no antedating and the late submission of the Deed of Sale was due to a reasonable and justifiable cause, such as where due to a fire in Quezon City Hall, the title to the property was destroyed and had to be judicially reconstituted, or the Contract of Sale show the last installment to have been paid on or before November 1989, or the new Deed of Sale amends only some minor details in the old Deed of Sale notarized in 1989 like adding the Tax Account Numbers of the Contracting parties. Therefore, since in the instant case, not only was the last installment made on October 31, 1986 but the delay in the execution of the Deed of Sale was due to legitimate reason as both parties overlooked the fact that payment had been completed, hence, the CAR should be issued by this Office in favor of Ms. Hermoso; and (2) that the PNB Provident Fund is a qualified pension plan having been created as an employee's trust for the benefit of PNB employee exempt from income tax and consequently from the creditable withholding tax pursuant to Section 53 (b) of the Tax Code and therefore, the sale of its property in favor of Ms. Hermoso is exempt from the creditable withholding tax provided in Revenue Regulations No. 1-90. In reply, please be informed that pursuant to Revenue Memorandum Circular No. 7-90 clarifying some pertinent provisions of Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended, the obligation of the payor to deduct and withhold arises at the time the consideration is paid or payable (par. 4, 7-90). In the case of installment sales, only such amounts paid beginning in January, 1990 shall be subject to withholding in consonance with the rule that regulations shall apply prospectively, thus, installment payments made prior to 1990 shall not be subject to the creditable expanded withholding tax. Accordingly, your opinion to the effect that since, in the instant case, the last installment was already paid on October 31, 1986 or before January, 1990; the execution of the Deed of Sale on May 23, 1990 which was intended merely to evidence transfer of an already paid up real property, was delayed due to justifiable reason, both parties, PNB Provident Fund and Ms. Hermoso having overlooked the fact that payments had been completed; and that the seller, PNB Provident Fund is a qualified tax-exempt employees' trust under then Section 56(b) (now 53 b) of the Tax Code as amended, having been clearly proven by the taxpayer, the withholding of creditable income tax requirement under Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 will not apply is hereby confirmed. cdta Such being the case, the Revenue District Officer of North, Quezon City, may therefore, issue the Certificate of Registration (CAR) in favor of Ms. Susita R. Hermoso without the payment of the creditable withholding tax on said sale in her favor by PNB Provident Fund of a parcel of land located in Quezon City covered by TCT No. 147171 issued in the name of PNB as the trustee thereof. (BIR Ruling No. 052-90). Moreover, pursuant to Section 196 of the Tax Code, documentary stamp tax shall be paid based on the amount appearing in the Deed of Absolute Sale executed on May 23, 1990. Very truly yours, (SGD.) JOSE U. ONG Commissioner