Payment of Creditable Withholding Tax

September 10, 1990 BIR RULING NO. 174-90 50 (b) 000-00 174-90 Gentlemen : This refers to your letter dated June 19, 1990 stating that on December 20, 1988, certain parcels of land owned by Freeman, Inc., a corporation duly organized and existing under and by virtue of Philippine laws were sold at public auction in favor of Private Development Corporation of the Philippines; that the sale was in pursuance of the Deed of Mortgage executed by the former to the latter; that at this option, the mortgagee being the highest bidder, bought the same subject to the condition provided by law; that is, the mortgagor as the owner of the lots, is entitled to redeem the land within one year from the date it is recorded in the Registry of Deeds; that a certificate of sale executed in Bian, Laguna, was approved by Jose Mar Garcia, the lawful Executive Judge; that before January 26, 1990, the date of the expiration of the redemption period, the rights appertaining to the said properties were assigned for a consideration amounting to P22,222,000.00 payable on or before December 7, 1989; that the assessed value of the properties is P8,246,810.00; that you are of the opinion that the sale which took effect on December 20, 1988 is not subject to RR No. 1-90 neither is the assignment because this regulation took effect only on January 1, 1990, and considering that under Revenue Memorandum Circular No. 80-89, the date of notarization appearing on the Deed of Sale shall be considered prima facie the date of consummation of the Contract of Sale and that a Deed of Assignment is not a Deed of Sale because what is conveyed by the former is not the properties itself but the rights pertaining to the properties; that an issue is raised as to whether the subsequent consolidation of title to the properties which took effect on January 26, 1990, expiration of the redemption period, is covered by the aforecited regulations; that you are likewise of the opinion that the transaction is not within the coverage of the revenue regulations considering that the properties were foreclosed and subsequently sold at public auction, it is for all intents and purposes a sale of real property; and that the rights given by law to the mortgagor-debtor to redeem the properties within the specified period of time did not prevent the perfection of the contract of sale between the mortgagor and purchaser. aisadc Based on the foregoing representation, you now request information as to whether the above-described transaction is covered by Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90. In reply, please be informed that under Revenue Memorandum Circular No. 7-90 dated January 16, 1990, 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; all 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. In the case of individuals, estates, trusts, trust funds or pension funds, only sales, exchanges, or transfers of real properties classified as ordinary assets, consummated on or after January 1, 1990, are subject to the creditable withholding tax. For this purpose, the date of notarization appearing on the Deed of Sale shall be considered prima facie the date of consummation of the contract of sale. Accordingly, your opinion to the effect that the sale of the parcels of land owned by Freeman, Inc. at public auction on December 20, 1988 in favor of Private Development Corporation of the Philippines as highest bidder in said auction sale is not subject to the creditable withholding tax imposed under Revenue Regulations No. 12-89, as amended by Revenue Regulations No. 1-90 since said regulations took effect only on January 1, 1990 is hereby confirmed. Moreover, your opinion to the effect that the assignment of rights pertaining to such properties by Private Development Corporation of the Philippines in favor of Mr. Eusebio T. Sy on December 11, 1989 is not also subject to the creditable withholding tax is likewise hereby confirmed. It is noted that only sales, exchanges or transfers of real properties are subject to the creditable withholding tax imposed under Section 50(b) of the Tax Code as implemented by Revenue Regulations No. 1-90; hence, assignments of rights in real property are not included within the purview of the said regulations considering that in assignments of rights the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertain. Moreover, a Deed of Assignment is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. It is, however, understood that gain derived by the assignor from and as a consequence of such assignment is subject to income tax. However, should Freeman, Inc. as seller in the aforesaid public auction sale, fail to redeem the properties sold within the period of redemption, i.e., within one year reckoned from the registration of said sale with the Register of Deeds concerned, and title to the properties sold are consolidated in the name of the assignee; Mr. Eusebio T. Sy by virtue of the aforementioned assignment of the rights of Private Development Corporation of the Philippines in his favor, the consolidation of title in said properties in favor of the assignee, Mr. Eusebio T. Sy, is subject to the 5% creditable withholding tax imposed under Section 50(b) of the Tax Code, as implemented by Revenue Regulations No. 1-90 since in such event the assignment of rights in such properties is considered to have been converted into the sale of such properties by the assignor in favor of the assignee, hence, subject to the creditable withholding tax prescribed under Section 50(b) of the Tax Code, as implemented by Revenue Regulations No. 1-90. casia Very truly yours, (SGD.) JOSE U. ONG Commissioner