Entitlement to the Lower Rate of 2.5% Creditable Withholding Tax on the Improvements Bought by Another Corporation

August 13, 1992 BIR RULING NO. 222-92 50 (b) 000-00 222-92 Republic Glass Holding Corporation 6th Floor, Republic Glass Building 196 Salcedo Street, Legaspi Village Makati 1200, Metro Manila Attention: Mr . Reynaldo Gan Tiangco SPL Projects Manager Gentlemen : This refers to your letter dated March 30, 1992 stating that one of your affiliated companies, Filcera Development Corporation, acquired a piece of land in San Vicente, San Pedro, Laguna for P7,318,000.00; that said land is part of the foreclosed properties of Private Development Corporation of the Philippines from Mayon Ceramics Corporation; that in compliance with Revenue Regulations No. 1-90, a 2.5% withholding tax was remitted to BIR-Calamba, the seller being a member of the Chamber of Real Estate and Builders Association (CREBA); that when you requested for the Authority to Transfer Title, a requirement of the Registry of Deed for the transfer of title, you were, however, required by the BIR-Calamba to pay the withholding tax corresponding to the cost of the buildings, improvements machineries and equipment, which are being classified as land improvements; and that said properties, were, however, bought by another corporation. cdta Based on the foregoing representations, you now in effect request a ruling as to whether or not you are liable to pay the creditable withholding tax on the said improvements which another corporation bought before a Certificate Authorizing Registration may be issued in favor of one of your affiliated companies, Filcera Development Corporation, relative to the sale in its favor of the land on which the said improvements were introduced. 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, 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. From the foregoing, it would appear that one of your affiliated companies, Filcera Development Corporation, having acquired only the land, excluding the improvements existing thereon, which another corporation bought, is liable to withhold and remit to the Revenue District Office where the property is located the corresponding creditable withholding tax due only on the sale of land (excluding the improvements). On the other hand, it is however, provided under Section 49(a) (4) of the Tax Code, that "No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner of Internal Revenue or his duly authorized representative has certified that such transfer has been reported and the tax herein imposed, if any, has been paid." Furthermore, to be entitled to the lower rate of 2.5% creditable withholding tax the vendor must be habitually engaged in Real Estate Business, certified as member by the Chamber of Real Estate and Builders Associations, Inc. (CREBA), and is registered with the Housing and Land Use Regulatory Board (HLURB)/Housing and Urban Development Coordinating Council (HUDC). Where any of the said conditions for the application of the 2.5% rate of creditable withholding tax is not met, the sale is subject to the 5% creditable withholding tax. (Page 4, RMC No. 7-90) Accordingly, in the instant case, it is not enough that the seller is certified by the CREBA as habitually engaged in the Real Estate Business, to be entitled to the lower rate of 2.5% creditable withholding tax. It must be also registered with HUDC/HLURB. Otherwise, it shall be subject to the 5% creditable withholding tax rate. cdti Very truly yours, JOSE U. ONG Commissioner of Internal Revenue