BIR Ruling No. 150-11

May 17, 2011 BIR RULING NO. 150-11 RA 7279; BIR Ruling No. 051-96; BIR Ruling No. 040-10 Samahang Maralita Tibay ng Bayan HOA Inc. Phase II Area B. St. Michael St. Republic Avenue, Quezon City Attention: Gloria A. Azares President Gentlemen : This refers to your letter dated February 29, * 2010 requesting on behalf of Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II for a tax exemption on the sale of real property by H&M Resources, Inc. in favor of Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II pursuant to Republic Act 7279 otherwise known as the "Urban Development and Housing Act of 1992". aCcADT It is represented that Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II with Taxpayer's Identification No. 226-264-442-000, is a non-stock, non-profit organization duly registered with the Housing and Land Use Regulatory Board (HLURB).It is securing a housing loan under the Community Mortgage Program (CMP),a financing assistance program of the Social Housing Finance Corporation (SHFC) and a subsidiary of the National Home Mortgage Finance Corporation (NHMFC),for the acquisition of the lots situated in Brgy. Bagbag (now Holy Spirit),Quezon City covered by Transfer Certificate of Title (TCT) No. N-207644 with an area of 4,521 sq.m. that its qualified member-beneficiaries occupy. On June 1, 2009, SHFC certified that the purchase of the aforesaid property by Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II is a bona fide transaction and qualifies for capital gains tax exemption under Section 32 (b) of RA No. 7279. On February 16, 2010, a Deed of Absolute Sale for the subject real property was executed by H&M Resources, Inc. as represented by Henry S. Koo in favor of Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II as represented by Gloria A. Azares in the amount of Eleven Million Three Hundred Two Thousand Five Hundred Pesos (Php11,302,500.00). In support of its request, Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II has completely submitted on July 16, 2010 the following documents: 1) Written Application for Exemption filed with the Law Division 2) Photocopy of the Transfer Certificate of Title (TCT) and Tax Declaration of the property to be transferred 3) Photocopy of the Certification from the Social Housing Finance Corporation (SHFC) that the property was acquired through CMP 4) Photocopy of the Articles of Incorporation of the community association 5) Certified true copy of the Masterlist of qualified beneficiaries duly certified by LGU 6) BIR Certificate of Registration of the Homeowner Association, and AaSHED 7) Other pertinent documents In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state that: 'Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: (d) Exemption from the payment of the following: (2) Capital gains tax on raw lands used for the project; xxx xxx xxx. Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax;' the landowner who sells its property to the Association pursuant to the CMP is exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90, as amended by Revenue Regulations No. 12-94. (BIR Ruling No. 051-96 dated April 12, 1996) In view of the foregoing, the sale by H&M Resources, Inc. in favor of Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II is exempt from the capital gains tax and the expanded withholding tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Transfer Certificate of Title of the parcel of land to be issued in the name of the Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II shall be caused to be annotated by the Register of Deeds having jurisdiction over the property to the effect that the said property shall be used for socialized housing pursuant to R.A. No. 7279. (BIR Ruling No. 051-96 dated April 12, 1996) Moreover, inasmuch as the area sold to the Samahang Maralita Tibay ng Bayan Homeowners Association, Inc. Phase II has been declared and certified by the NHA to be covered by the Area for Priority Development (APD) site, the same shall be subject to documentary stamp tax based on the value appearing in the latest Tax Declaration issued by the Provincial or City Assessor or the actual consideration of the sale, whichever is higher, pursuant to Revenue Memorandum Circular No. 42-01 which provides: IV. Summary In summary, the documentary stamp tax consequences of the various transactions under R.A. No. 7279 shall be as follows: xxx xxx xxx 4. If the real property is situated in an area that has been declared as an APD, documentary stamp tax shall be imposed based on the value appearing in the latest Tax Declaration issued by the Provincial or City Assessor or the actual consideration of the sale as stated in the document, whichever is higher. However, only the seller is subject to the documentary stamp tax, since the occupants are exempt from the said tax. HScCEa Foregoing considered, it is the seller who shall be liable for the documentary stamp tax since the occupants are exempt from the said tax under Section 25 of R.A. 7279 which states that: "Sec. 25. Benefits. In addition to the benefit provided under existing laws and other related issuances to occupants of areas for priority development, zonal improvement program sites and slum improvement and resettlement program sites, such occupants shall be entitled to priority in all government projects initiated pursuant to this Act. They shall also be entitled to the following support services: xxx xxx xxx (c) Exemption from the payment of documentary stamp tax, registration fees, and other fees for the issuance of transfer certificate of titles; xxx xxx xxx" It is, however, understood that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deed to effect transfer of the land titles in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR). The CAR shall only be issued after the submission of the requirements provided under RMO 15-2003. (BIR Ruling No. 040-10 dated August 27, 2010) Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit that the actual occupants of the properties transferred under the CMP are qualified beneficiaries and therefore, the sellers are entitled to exemption from the capital gains tax or income tax imposed under the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue