Sale of Property by a Company who Suffered Net Operating Losses in the Past Two Years Exempted from Withholding Tax

August 15, 1994 BIR RULING NO. 126-94 50 (b) 000-00 126-94 International Realty Management Corporation 10 Hilltop Street, Horseshoe Village Cubao, Quezon City Attention: Mrs . Ravelina R . Limson President Gentlemen : This refers to your letter dated August 3, 1994 requesting in effect, exemption from the payment of the withholding tax on the sale of your property located at 23-B Mariposa St., Cubao, Quezon City pursuant to Revenue Regulations No. 12-94. It is represented that the International Realty Management Corporation (IRMC) is a domestic corporation engaged in land development; that since its incorporation on January 20, 1988, it is alleged that the corporation has not been earning from its business operations due to fortuitous events; that in 1989, its property located at 10 Hilltop Street, Horseshoe Village, Cubao, Quezon City, which is also a family house, was mortgaged with the Bank of the Philippine Islands (BPI) to buy a lot located in 23 B Mariposa St., Cubao, Quezon City; that in 1990, after having reconstituted the title of the aforesaid property, the same property was mortgaged with the Philippine National Bank (PNB) for P8,000,000.00 to be able to take out its loan from the BPI; that allegedly, after having incurred net operations losses for the past two (2) years (1992 and 1993) in business operations, as evidenced by its duly audited financial statements and income tax returns, IRMC's loan obligation with the PNB, as of July 15, 1994, reached to P25,000,000.00; that the property in Mariposa St., Cubao, Quezon City is scheduled to be foreclosed, however, an earnest buyer is offering to buy the said property for P25,000,000.00, which is barely enough to cover its loan obligations with the PNB. In reply, please be informed that Section 3(d) of the Revenue Regulations No. 12-94, amending Revenue Regulations No. 6-85, otherwise known as the "Expanded Withholding Tax Regulations", provides that: "Sec. 3. Section 4 of Revenue Regulations No. 6-B5 is hereby amended to read as follows: Sec. 4. Exemption from Withholding The withholding of tax prescribed in these regulations shall not apply to income payments in the following cases: xxx xxx xxx (d) In the case of a payee who suffered net operating losses during the immediately preceding two (2) tax years; xxx xxx xxx Such being the case, since your company suffered net operating losses during the immediately preceding two (2) tax years, 1992 and 1993, this Office is of the opinion as it hereby holds that the sale of your property located at 23-B Mariposa St., Cubao, Quezon City, covered by Transfer Certificate of Title No. 19498 issued by the Registry of Deeds of Quezon City, is exempt from the creditable withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation the facts turned out to be different, then this ruling shall not apply and/or considered null and void. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue