Tax Base in Computing the Creditable Withholding Tax and Documentary Stamp Tax Due on the Sale of a Property

September 7, 1994 BIR RULING NO. 151-94 21 (e) 196 000-00 151-94 Sinagtala Homeowners Association Sinagtala, Bahay Toro Quezon City Attention: Ms . Fe Surallo President Gentlemen : This refers to your letter dated July 25, 1994 stating that in connection with the property you purchased from the Monte de Piedad & Savings Bank situated at Sinagtala, Bahay Toro, Quezon City, you are being assessed by this Office in the respective amounts of P366,340.00 and P220,500.00 as creditable withholding tax and documentary stamp tax on said sale transaction based on the zonal valuation of P2,600.00 per square meter; that the said property is a parcel of land containing an area of 5,636 square meters embraced in and covered by eleven (11) transfer certificates of title; that your members have been occupying the subject property even before the same was foreclosed by the Bank from its former owner; that upon learning that the Bank is the new owner of the property, you, in coordination with the City Government of Quezon City, more particularly the Office of the City Planning and Urban Poor, requested the Bank that you be allowed to purchase the property for the benefit of your members who are poor squatters; that the Bank, in line with its thrust to help the poor and the needy, being owned by the Roman Catholic Church, agreed to sell the property in your favor at a very low price, provided, that you shoulder all taxes and expenses relative to the said sale transaction; that the property was sold by the Bank in your favor for and in consideration of only P676,320.00 (P120.00/sq.m.) on January, 1989, payable in five (5) years at 15% interest p.a.; that you have already paid in full the selling price, hence, the abovementioned tax assessment; and that your members could not afford to pay the tax being assessed considering that they will still pay the loan you obtained to fully pay the purchase price of the property to the Bank. cdta Based on the foregoing representations and documents submitted, you now request in behalf of your members a ruling to the effect that the actual consideration of P676,320.00, instead of the zonal valuation of the property in question, be used as tax base in computing the creditable withholding tax and documentary stamp tax due on the sale in your favor by Monte de Piedad & Savings Bank of the said property in January, 1989. In reply, please be informed that under Revenue Memorandum Order No. 41-91, in all cases involving sale, exchange, or any disposition of real property, the tax base for documentary stamp tax purposes shall be the same as the tax base used in the computation of the capital gains tax which means, gross selling price, fair market value, or zonal value of the real property, whichever is higher, except in the following instances, where among others, the actual consideration appearing in the Deed of Sale shall be an acceptable tax base in the computation of not only the capital gains tax but also the documentary stamp tax, viz: 1. Sale of residential lots financed by the National Home Mortgage Finance Corporation (NHMFC) under its Community Mortgage Project, in favor of poor tenant-beneficiaries. (BIR Ruling No. 001-91) 2. Sale of land by the National Housing Authority (NHA) as mandated under E.O. No. 90, in favor of its target clientele/beneficiaries who belong to the lowest 30-50% of the income bracket. (BIR Ruling No. 232-90) From the foregoing, it appears that when the sale of realty is in favor of poor tenant-beneficiaries or beneficiaries who belong to the lowest 30-50% of the income bracket, this Office allows the actual consideration appearing in the Deed of Sale as an acceptable tax base in the computation of not only the capital gains tax, but also to the documentary stamp tax which could also be applied in the case of the creditable withholding tax imposed under Revenue Regulations No. 1-90 since said tax has the same tax base as the capital gains tax. Such being the case, and since you are similarly situated as those enumerated in RMO No. 41-91, this Office is of the opinion, as it hereby holds that the actual consideration of P676,320.00 appearing in the Deed of Sale executed by Monte de Piedad & Savings Bank in your favor relative to the aforementioned parcel of land is an acceptable tax base in computing the creditable withholding tax and documentary stamp tax due on said sale transaction. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue