DBP Subject to Creditable Withholding Tax on Sale of Real Property

July 9, 1999 BIR RULING NO. 099-99 Sec. 27 (C); RR 2-98-000-00-099-99 Mr. Guillermo R. Guce Revenue District Officer Revenue District Office No. 45 Marikina City S i r : This refers to your letter dated January 11, 1999 requesting for a ruling as to whether or not the Development Bank of the Philippine (DBP) , a government financial institution is subject to the 7.5% Expanded Withholding Tax. It appears that DBP is the registered owner of a parcel of land covered by Transfer Certificate of Title No. N-55172 of the land records of Marikina Branch, together with the building and other improvements thereon; that under a Conditional Sale Agreement dated October 7, 1981, DBP agreed to sell the said property to Mrs. Rosella S. Lorenzo for a total purchase price of P300,000.00; that the Vendee has fully paid the said purchase price of P300,000.00; and that on January 5, 1999, a Deed of Absolute Sale was executed by DBP whereby the said property was sold, transferred and conveyed to Mrs. Rosella S. Lorenzo. In reply, please be informed that Sec. 2.57.5(A) of Revenue Regulations No. 2-98 provides that the withholding of creditable withholding tax shall not apply to income payments made to the National Government and its instrumentalities, including provincial, city or municipal governments. It will be noted that, unlike Revenue Regulations No. 12-94 which amended Revenue Regulations No. 6-85, government-owned or controlled corporations are excluded in the enumeration. This is so, because under Section 27(C) of the Tax Code of 1997, all corporations, agencies or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR) are now subject to such rate of tax upon their taxable income as are imposed upon corporations or association engaged in similar business, industry or activity. Accordingly, since DBP is not habitually engaged in real estate business, it is subject to the 7.5% creditable withholding tax on the sale of real property covered by TCT No. N-55172 to Mrs. Rosella S. Lorenzo, pursuant to Sec. 2.57.2(J) of Revenue Regulations No. 2-98. LLpr Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue