Taxability of Sale of Personal Properties and of Real Properties by GOCC thru Asset Privatization Trust

September 29, 1998 BIR RULING NO. 141-98 24 (a)-000-00-141-98 Reyno Tiu Domingo & Santos Law Offices 12th Floor, Strata Building Emerald Avenue, Ortigas Center Pasig City Attention: Mr . Ferdinand A . Domingo Gentlemen : This refers to your letter dated July 2, 1996 requesting for opinion as to whether or not the sale of personal properties is not subject to documentary stamp tax under Section 196 of the Tax Code, and that sale of real properties by government-owned or controlled corporation through the Asset Privatization Trust (APT) is not subject to the capital gains tax and consequently, to the expanded withholding tax. It appears that Busco Sugar Milling Co., Inc. (Busco), Buyer, is a domestic corporation with principal office at 4/F, Corinthian Plaza, Paseo de Roxas, Makati; that National Sugar Milling Corporation (NASUREFCO) Seller, is a government-owned or controlled corporation with principal office at 4th floor, Liberty Building, Pasay Road, City of Makati; that NASUREFCO owns sugar refineries composed of both movable and immovable properties consisting of building, other land improvements, machinery and equipment, material handling equipment, transportation equipment, furniture and office equipment, communications equipment and other equipment situated at Quezon, Bukidnon and Cagayan de Oro City; that in line with the government's privatization program the Committee on Privatization (COP) identified for privatization of NASUREFCO's three (3) sugar refineries, and for this purpose COP designated the Department of Agriculture, COP designated APT as the selling agent for the disposition of NASUREFCO's sugar refineries; that during the bidding conducted by APT for Bukidnon refinery on March 22, 1991, Eastern Sugar Corporation (Eastern) emerged as the highest bidder and deposited 10% of the bid price with APT; that because of subsequent disagreement on the terms of payment of the balance, APT forfeited deposit resulting in litigation which eventually ended in a Compromise Agreement approved by the Quezon City Court in Civil Case No. 91-9975. All things considered, the purchase price received by APT in the total amount of P310,000,000 (P31,000,000.00 + P279,000,000.00) under APT Official Receipt Nos. 1376072 and 1376426, respectively, includes movable and immovable properties on an "as-is-where-is" basis. In reply, please be informed that Title VII of the Tax Code is silent on the imposition of documentary stamp tax on transactions involving sale of personal property. Since the tax burden is strictly construed against the taxing authority and liberally in favor of the taxpayer (refer to Martin's Statutory Construction, 1979 Ed., p. 203), it can be safely concluded that the imposition of documentary stamp tax (other than the stamp tax on the certification by the Notary Public under Section 188 of the Tax Code) on the sale of personal property is not intended. Accordingly, in a "block sale" of real and personal properties, only the consideration attributed to the real property shall be subject to the documentary stamp tax rate under Section 196 of the Tax Code. LLpr In determining whether or not the foregoing transaction is subject to capital gains tax and consequently, to the creditable withholding tax, only two (2) issues are relevant: (1) whether the transfer is in line with the privatization program contemplated under Proclamation No. 50; and (2) whether the tax exemption clause is adequate to exempt the transaction from capital gains tax and consequently from withholding tax. Article 1, Section 1 of Proclamation No. 50 states: "SEC. 1. Statement of Policy . It shall be the policy of the State to promote privatization through an orderly coordinated and efficient programs for the prompt disposition of the large number of non-performing assets of the a government financial institutions, and certain government-owned or controlled corporations which have been found unnecessary or inappropriate for the government sector to maintain." The fact that the sale was effected by APT as directed by the COP confirms the first issue in the affirmative. Consequently, pursuant to the tax exemption clause under Proclamation No. 50 reading "SEC. 34. Exemption from Taxes , Fees and Other Charges . The provisions of any law to the contrary notwithstanding, the Trust, as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and/or from the Trust to a private acquisitor or buyer imposed by the National Government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps, registration fees and the like: Provided, that in the said government institutions acquired the said assets by foreclosure, the non-payment of similar taxes fees, charges imposts and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Trust or the corporations held by Trust. "The sale or transfer of such corporations or assets shall not be enjoined or hindered by the existence of any lien by way of taxes, charges or other assessment in favor of the government at the time of sale or transfer. Provided, that the proceeds from such sale or transfer shall be subject to a tax lien and first be applied to satisfy such obligations secured by said liens." (Emphasis supplied) the subject transaction is exempt from capital gains tax and consequently from the creditable expanded withholding tax, since Section 4(a) of Revenue Regulations No. 6-85, as amended by Revenue Regulations 12-94, implementing Section 50(b) of the Tax Code, as last amended Rev. Regs. No. 2-98 exempts those persons enjoying exemptions from payment of income taxes pursuant to the provisions of any law, general or special, from the withholding tax provisions of the said Regulations. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue