Tax Consequences on the Sale of Church-Owned Vehicles to Their Managers at 30% Below the Fair Market Value

November 6, 1991 BIR RULING NO. 233-91 50 (b) & 91 000-00 233-91 Gentlemen : This refers to your letter dated March 12, 1991 stating that as a result of the last tax seminar conducted by this Office, you became more tax conscious and thus made it a point that you fully comply with tax rules; and that for clarification on "Employer's convenience", you would like to know the stand of this Office on the following situation: "The church is making every effort to 'do more with less'. One of the measures undertaken was to reduce its gasoline expenses, and repairs and maintenance costs of church owned vehicles. Thus, all church owned vehicles previously assigned to managers for their use in coming to and from the office were withdrawn. In view of this, the managers were given the option to buy from the church one surplus vehicle. The church normally sells surplus vehicles at fair market value. However, since the church would like to help its managers continue the use cars for travel to and from the office, the cars will be sold to them at 30% below the fair market value." Based on the foregoing representations, you now in effect request a ruling as to whether or not the above stated discount on the sale of your surplus vehicles is considered on the part of your managers taxable income; and is the church liable to withhold income taxes from such sales. cdtech In reply, please be informed that under Section 93 of the Tax Code, as amended, where property other than real property referred to in Section 21 (e) of the same Code, is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for purposes of the donor's tax be deemed a gift and shall be included in computing the amount of gifts made during the calendar year. On the other hand, under Revenue Memorandum Circular No. 35-91 providing the guidelines for the implementation of Revenue Regulations No. 8-90 as amended by Revenue Regulations No. 2-91 implementing Section 50 (b) of the Tax Code, as amended, all sales, exchanges or transfers of motor vehicles, whether brand new or second hand, including transactions between two individuals not engaged in trade or business, on or after June, 1991, shall be subject to the creditable withholding tax imposed under Revenue Regulations No. 8-90 as amended by Revenue Regulations No. 2-91, except the following: a) Motor vehicle sold, exchanged or transferred for P50,000 or less, which is of 1978 or earlier model. Both conditions must be satisfied to be exempt from withholding tax; b) Motorcycles and similar vehicles; c) Motor vehicles sold by manufacturers who participate in the Car Development Program (CDP) or Commercial Vehicle Development Program (CVDP) to their franchised dealers. But when such vehicle is sold to a person other than its franchised dealer, the same shall be subject to the creditable withholding tax. Such being the case, the sales discount of 30% below the fair market value of your surplus vehicles being given in favor of your managers on the sale in their favor of your surplus vehicles are not, on the part of the said managers, considered as income subject to tax. However, such sales discount of 30% shall, for purposes of the donor's tax, be deemed a gift subject to the donor's tax imposed under Section 91 of the Tax Code, as amended. (Section 93, Tax Code) Moreover, you shall be subject to the creditable withholding tax imposed under Revenue Regulations No. 8-90 as amended by Revenue Regulations No. 2-91 implementing Section 50 (b) of the Tax Code, on the sale of your surplus vehicles in favor of the managers beginning June, 1991 based on the gross selling price of such vehicles subject to the exception provided in the aforestated Revenue Regulations notwithstanding the fact that you are, in all probability, a religious corporation exempt from income tax under Section 26 of the Tax Code, since under last paragraph of the said section the income tax exemption granted thereon does not include exemption on any income that may be derived by such corporation in dealing with their real and personal property. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner