Sale, Exchange or Transfer of Real Property by Corporation Habitually Engaged in Real Estate Business Subject to 3% EWT

June 29, 1998 BIR RULING NO. 106-98 000-00-106-98 Ms. Bella R. Dawang c/o United Coconut Planters Bank UCPB Bldg., Makati Avenue Makati City M a d a m : This refers to your letter dated September 1, 1997 requesting, in effect, for a ruling as to whether or not under the Deed of Absolute Sale executed by and between your mother, Ms. Dorita delos Reyes (Buyer) and S. Aragon Realty & Development Corporation (Developer) through Fil-Estate Marketing Associates, Inc. (Broker) dated July 30, 1997, the buyer is obliged to pay the 3% expanded withholding tax under Revenue Regulations No. 12-94. It is represented that on December 9, 1996, the Buyer has offered to purchase from the Broker a house and lot a the University Hills Estate Subdivision located at Dasmarias, Cavite, particularly Block 7, Lot 4, Phase I, Model SA-36 at a contract price of P558,400.00, which is owned by the Developer with License to Sell No. R4-96-02-0034; that in the Reservation Application filed with Broker, the Buyer paid the amount of P10,000.00 as option money as evidenced by Provisional Receipt No. 17733 dated December 9, 1996, with the condition that a 10% discount, excluding the miscellaneous expenses, shall be granted, if payment is made in cash within 20 days, that in order to avail the said 10% discount, the Buyer within the 20 day period paid in cash the amount of P502,560.00, net of 10% discount, in two installments, viz.: Provisional Receipt Date Amount 117766 Dec. 16, 1996 P373,191.40 117794 Dec. 24, 1996 119,368.51 that pursuant to Revenue Regulations No. 12-94, implementing Section 50(b) of the Tax Code of 1977 [now Section 57(B) of the Tax Code of 1997], the sale, exchange or transfer of real property, whether held as capital or ordinary asset by S. Aragon Realty & Development Corporation is subject to the 3% expanded withholding tax or a total amount of P15,076.80; that on April 7, 1997, you have received a letter from S. Aragon Realty & Development Corporation, informing you that the aforementioned property has been completed and ready for turn-over but reminding you to pay the miscellaneous expenses, which include the 3% expanded withholding tax in the amount of P15,076.80; that you are of the opinion, that if the breakdown of miscellaneous expenses were given to you before you paid the total contract price net of 10% discount, you should have deducted the P15,076.80 from the contract price and remitted the same to the BIR since you were constituted as withholding agent; that on July 30, 1997, a Deed of Absolute Sale was executed in favor of your mother, Ms. Dorita delos Reyes by S. Aragon Realty & Development Corporation; and that you are now working for the transfer of the title of the said real estate in the name of your mother. dctai In reply, please be informed that pursuant to Section 1(j)(2) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, implementing Section 50(b) of the Tax Code of 1977 [now Section 57(B) of the Tax Code of 1997], the sale, exchange or transfer of real property whether held as capital or ordinary asset by a corporation habitually engaged in the real estate business shall be subject to 3% expanded withholding tax. Moreover, Section 2(a) of said Regulations provides, that individual buyers who are not engaged in trade or business shall be required to withhold and deduct the said tax and shall be constituted as withholding agents, but need not register as such. Since there is no showing that the contract price of P558,400.00, less the 10% discount for the sale of house and lot between Ms. Dorita de los Reyes and S. Aragon Realty & Development Corporation through Fil-State Marketing Associates, Inc. include the 3% expanded withholding tax, it is the buyer/payor who is required to deduct and withhold the said tax being the withholding agent for the Government. Considering that the amount of P502,560.00, net of 10% discount, had been fully paid, the obligation of the buyer/payor to deduct and withhold the aforesaid tax has accrued. Such being the case, the failure on the part of the buyer/payor to withhold and remit the 3% expanded withholding tax shall be subject to the corresponding surcharge, interest and other penalties from the time the tax is required to be withheld. You are, therefore, advised to remit the said withholding tax, together with the corresponding surcharge, interest and compromise penalties within ten (10) days from your receipt of this letter. prcd Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue