Whether Arcya Commercial Corporation is Obliged to Deduct and Withhold the 5% Creditable Withholding Tax Due on Certain Transactions

April 3, 1992 BIR RULING NO. 120-92 50 (b) 000-00 120-92 Atty. Mariano C. Eraso, Jr. 2100 A. Mabini St., Malate, Manila S i r : This refers to your letter dated February 19, 1992 stating that your client, Arcya Commercial Corporation purchased certain condominium units in Echelon Tower Condominium, 2100 A. Mabini St., Malate, Manila, from the defunct Pacific Banking Corporation (Bank) now undergoing liquidation by the Philippine Deposit Insurance Corporation (PDIC); that your client as the buyer of the condominium units, deducted and withheld from the payments on the condominium units due PDIC as liquidator of the Bank the 5% creditable withholding tax under Revenue Regulations Nos. 12-89 and 1-90; that PDIC claims in its letter to your client that the transaction is not subject to the 5% creditable withholding tax stating ". . . that it (PDIC) has always been our position as well as that of the Central Bank, that a closed bank undergoing liquidation is not covered by the 5% creditable withholding tax on the sale of real properties on the ground that a closed bank is not liable to any income tax on recoveries obtained by the closed bank during liquidation"; and that you are of the opinion that your client as the duly constituted withholding agent under Section 2 of Revenue Regulations No. 6-85, as amended is mandated to deduct and withhold the 5% creditable withholding tax due on the transaction because "(a) the condominium units were sold by the Bank through its liquidator, the PDIC, for a consideration in excess of its cost of acquisition; (b) the transaction in question is not among those exempt from the 5% creditable withholding tax; and (c) under the provision of Section 47 of the Tax Code as amended, it is clearly stated that" . . . receivers; trustees in bankruptcy, or assignees are subject to (income tax), . . . are required to make returns of net income as and for such corporation, in the same manner as if assessed directly against the organization . . . whose business or properties they have custody and control." In connection therewith, you now request confirmation of your opinion to the effect that your client is obliged to deduct and withhold the 5% creditable withholding tax due on the aforementioned transaction. In reply, thereto, I have the honor to inform you that pursuant to Sec. 1 (j)(iii) of the Revenue Regulations No. 1-90 amending Revenue Regulations No. 12-89 and amplified by Revenue Memorandum Circular No. 7-90, the gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property, either than capital assets, by an individual, estate, trust, trust fund or pension fund or real property, whether capital or ordinary asset, by a corporation who is not habitually engaged in real estate business shall be subject to a creditable withholding tax of 5%. Such being the case, the aforementioned transaction is subject to the 5% creditable withholding tax. Moreover, your client, Arcya Commercial Corporation as the duly constituted withholding agent under Section 2(b) of Revenue Regulations No. 6-85, as amended is obliged to deduct and withhold the 5% creditable withholding tax due on the aforementioned transaction. atdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue