Internal Revenue Taxes Imposed on Income Payments to National Government and Its Instrumentalities

September 3, 1990 BIR RULING NO. 170-90 24 (c) 000-00 170-90 S i r : This refers to your letter dated May 3, 1990 requesting exemption from the payment of capital gains tax amounting to P1,686,957.50 being assessed on the sale to the Bureau of Local Government Finance (BLGF) of the 6th Floor of BF Condominium located in Aduana, Intramuros, Manila, by the Land Bank of the Philippines (LBP). casia Documentary evidence submitted show that by virtue of a Deed of Absolute Sale executed on February 5, 1989 by and between the LBP and BLGF, the former sold, transferred and conveyed to the latter an office condominium unit located at the 6th Floor, BF Condominium, Aduana, Intramuros, Manila and more particularly described as follows: "Sixth Floor: Including: 2 vault rooms, 17 toilets, 12 AHU rooms, 2 kitchenettes, lobby. Area: 3,052.65, sq. m." its title thereto being evidenced by Condominium Certificate of Title No. 73 issued by the Register of Deeds of Manila for and in consideration of the sum of P24,500,000.00; and that the vendee, BLGF shall shoulder the payment of documentary stamp tax and all other expenses related to the transfer of the property in its name. In this connection, it is stated that the abovementioned request is based on the following grounds: "1) The contract of sale is a government to government transaction; "2) That the Bureau of Local Government Finance has no authorized appropriations for the purpose; and "3) The issuance of the Certificate of Tax Exemption is needed in order to comply with the legal requisite by the Register of Deeds in the registration of the subject Deed of Absolute Sale." In reply, please be informed that effective June 11, 1984 and March 10, 1987, respectively, under P.D. No. 1931 and E.O. No. 93, the tax exemptions and/or preferential tax treatment in favor of government-owned and controlled corporations, including their subsidiaries and all other units of government had been withdrawn. Such being the case, income payments to the national government and its instrumentalities, as well as government-owned or controlled corporations are now subject to internal revenue taxes. Accordingly, as the vendor in this case, LBP is subject to income tax imposed under Section 24 of the Tax Code on the gains realized from the sale of the 6th Floor of BF Condominium situated at Aduana, Intramuros, Manila on February 8, 1989. However, since the aforesaid sale was consummated on February 8, 1989, the income payments to LBP are not subject to the creditable withholding tax imposed under Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90. It is to be noted that only the sales, exchanges, or transfers of real properties (whether classified as ordinary or capital asset) by corporations, consummated on or after January 1, 1990 are subject to the creditable withholding tax. (Par. 1, Revenue Memorandum Circular No. 7-90) Furthermore, the Deed executed for the purpose of said sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, based on the consideration appearing on said deed which is P24,500,000.00, since there is no showing that the amount of the documentary stamp tax has been reduced by an incorrect statement of the consideration so as to justify the collection of the said tax based on the property's fair market value. Finally, after payment of the documentary stamp tax, this Office will not interpose any objection to the transfer of title by the Register of Deeds concerned of the aforementioned 6th Floor of the BF Condominium in the name of the Bureau of Local Government Finance. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner