Request for Exemption from Capital Gains Tax on Resale of Titan Construction Corp.'s Property to Makati Residents

December 18, 1991 BIR RULING NO. 268-91 50 (b) 000-00 268-91 Gentlemen : This refers to your letter dated September 16, 1991 which was referred to this Office by the Office of the President requesting exemption from the payment of capital gains tax on the resale by Titan Construction Corp. of its property located at No. 1888 Zureka, Barangay La Paz, Makati to the resident thereof. cdta It is represented that you were informed that the proposal of the Assumption Foundation for a P2.6 million grant for Land Acquisition for Social Housing Project "is as good as approved"; that its first beneficiary shall be the outreach community of the Assumption located at No. 1888 Zureka, Barangay La Paz, Makati; that the said property is being resold to the residents at its acquisition cost of P600/sq. m. by the Titan Construction Corp. which is way below its current market value so as to make it affordable to its urban poor residents; and that the waiver of capital gains tax is among the proposed incentives in the Urban Land Development bill to encourage landowners and developers to provide land for social housing. In reply, please be informed that all sales, exchanges, or transfers of real properties (whether classified as ordinary or capital asset) by corporation, as in the instant case, consummated on or after January 1, 1990, are subject to the creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended, and not to the 5% capital gains tax imposed under Section 21 (e) of the Tax Code, based on the gross selling price. For this purpose, the term "Gross Selling Price" means the consideration stated in the sales document or the fair market value/zonal value, whichever is higher. (Revenue Memorandum Circular No. 7-90) However, this Office, realizing that it takes a considerable amount of sacrifice and fortitude on the part of Titan Construction Corp. to part with and dispose of its real property specially at a price much lower than the current zonal valuation or market appraised value and considering that the likelihood or understatement of consideration is remote in this case as the negotiation thereof is being made through the Housing and Urban Development Coordinating Council (HUDCC), a government agency, the use of the actual consideration P600 per square meter as basis in determining Titan Construction Corp. creditable withholding tax liability as a consequence of said sale of its property, is hereby granted as an exception to the policy of this Bureau in relation to Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended. Moreover, the Deed of Sale to be executed for the purpose is subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, based also on the consideration of P600 per square meter. Very truly yours, (SGD.) JOSE U. ONG Commissioner