Request for Exemption from the Expanded Withholding Tax on Sales Already Declared and the Corresponding Income Taxes Paid

May 20, 1992 BIR RULING NO. 153-92 50 (b) 000-00 153-92 Integral Realty Corporation Suite 818 Ortigas Building Ortigas Avenue, Pasig, Metro Manila Attention: Mr . Rolando V . Tongco President Gentlemen : This refers to your letter dated October 15, 1991 stating that you are a real estate development company engaged primarily in the building and sale of Condominium units; that most of your sales on a deferred-payment scheme covered by Contract to Sell whereby the total initial payments you received in the year of sale exceed 25% of the selling price; that your company follows the generally accepted practice of recording income on such sales under the accrued method of accounting and hence, the full income realized on such sales is declared in the year of sales; that when full payment by the buyer is made the next taxable year and transfer of Titles shall be made, the 2.5% withholding tax is required from you for the Certificate Authorizing Registration; and that since most of your buyers are not withholding agents, you would have to remit the withheld amount on sales in which the income realized has already been declared in a previous taxable year. Based on the foregoing representation, you now request exemption from the expanded withholding tax on sales that have already been declared and the corresponding income taxes already been paid. In reply, please be informed that under Revenue Memorandum Circular No. 7-90 clarifying some pertinent provisions of Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended, in the case of a corporation, all sales or exchange of real property, whether classified as ordinary or capital asset, shall be subject to the expanded withholding tax. The amount of withholding tax paid during the quarter to the BIR evidenced by Confirmation/Official Receipts (CR/OR) and covered by BIR Form No. 1743-B, is creditable against its income tax liability for the quarter in which payments or remittance of taxes were made. Moreover, considering that sales or exchange of real properties covered by the aforementioned regulations are merely added as one of the income payments subject to the expanded withholding tax provisions of Revenue Regulations No. 6-85, all other provisions of said regulations shall also apply to sales of real properties. For example, the obligation of the payor to deduct and withheld arises at the time the consideration is paid or payable. The required withholding tax return shall be filed and the tax shall be remitted within ten (10) days after the end of each month. Such being the case, and since you are following the generally accepted practice of recording income on such sales under the accrued method of accounting, the obligation of the payor to withheld which you have assumed should therefore be made at the time of your receipt of the initial payment for such sale considering that sales on a deferred-payment is considered as sales on a cash basis. Accordingly, your request is hereby denied for lack of legal basis. Furthermore, to be entitled to the lower rate of 2.5% creditable withholding tax rate the vendor must be habitually engaged in real estate business, certified as member by the Chamber of Real Estate and Builders Association, Inc. (CREBA), and is registered with the Housing and Local Use Regulatory Board (HLURB) and issued with a License to sell for subdivision or Condominium project (RMC No. 16-90) thus, for you to be entitled to the lower creditable withholding tax rate of 2.5%, you must be able to show by documentary evidence that you are able to meet the foregoing requirements. adc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue