Tax Consequence of Transfer of Titles

October 17, 1990 BIR RULING NO. 203-90 26 & 50 (b) 000-00 203-90 Gentlemen : This refers to your letter dated May 14, 1990 stating that you are a non-stock, non-profit social welfare, and development agency of the Archdiocese of Manila with BIR Tax Exemption Certificate No. 1126; that sometime in late 1987, you developed a subsidized housing project in Novaliches, Caloocan City; that this project was intended primarily to relocate Filipino-Vietnamese repatriate families residing within the Caritas Compound and to help these families to live within Filipino community; that to achieve this endeavor; you also included in the project your low-salaried, property-less employees and some Archdiocesan agencies who shall avail of these units under the Unified Lending Program thru SSS; that you are now in the process of transferring the titles of the properties to those qualified personnel as a requirement before loan take-out; and that you were however verbally informed at the BIR-Caloocan that these transactions will be subjected to withholding tax of 5% under a Revenue Regulations. aisadc Based on the foregoing representations, and considering that you are a tax exempt institution and that the project itself was subsidized by the company being a part of your program for these homeless Filipinos and Vietnamese repatriates, you now request in effect a ruling as to whether or not you are subject to the 5% withholding tax in the transfer of your aforesaid properties. 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, when the seller of real property is an entity exempt from income tax (e.g., GSIS, SSS, qualified pension), no withholding of tax is required to be made thereon. In such a case, the seller must execute an affidavit establishing its exemption from income tax and submit the same together with the relevant law, decree or executive order. However, if the seller is an exempt entity under Section 26 of the Tax Code, the gain from sale of real property is still subject to income tax and consequently to withholding tax, because the last paragraph of said section provides that "notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, . . . , regardless of the disposition made of such income, shall be subject to tax imposed under this Code." Such being the case, and since, in all probability, the tax exemption you are enjoying is under Section 26 of the Tax Code, the transfer of your aforementioned properties is therefore subject to the 55 creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner