BIR Ruling No. 296-14

July 24, 2014 BIR RULING NO. 296-14 RR No. 2-98; RR 7-2003; RMO No. 18-2009 Imperial Sky Garden Condominium Corporation 707 Ongpin St.,Binondo, Manila Attention: Ramon Y. Lim President/Chairman of the Board Gentlemen : This refers to your letter dated 17 April 2012, requesting that the conveyance of a parcel of land by China Banking Corporation ("CHINABANK") to Imperial Sky Garden Condominium Corporation ("IMPERIAL") is exempt from capital gains tax. It is represented that CHINABANK is a universal banking corporation duly organized and existing under the laws of the Republic of the Philippines; that CHINABANK is the registered owner of a parcel of land located in Binondo, Manila, covered by TCT No. 253014 of the Registry of Deeds of Manila where Imperial Sky Garden Condominium Project was constructed and developed by Ray Burton Development Corporation, in joint venture with previous land owner, Mercantile Investment Company, Inc.; that IMPERIAL is a condominium corporation organized for the primary purpose of owning or holding title of the common areas in the said condominium project as well as to maintain, administer and manage the said project; that in compliance with the provisions of the Condominium Act, CHINABANK transferred title and ownership over the parcel of land in favor of IMPERIAL. In reply, please be informed that your request is denied for lack of legal basis. Revenue Memorandum Order (RMO) No. 18-2009 which permits transfer of the land and common areas pertaining to the condominium project from the real estate developer to the condominium corporation without issuing Certificate Authorizing Registration (CAR) or Tax Clearance (TCL) does not apply to the instant case as CHINABANK was not the condominium developer. The pertinent provisions of RMO No. 18-2009, is reproduced below: xxx xxx xxx 3. The concerned Revenue District Officer (RDO),upon receipt of all the documents as enumerated in item (IV) hereunder, can proceed with the issuance of the CAR/TCL relative to the conveyance of the land and the common areas made by the real estate developer to the Condominium Corporation, provided, that the RDO is assured that the facts and the circumstances surrounding such transfer are analogous to the facts and circumstances contained in the previously promulgated rulings of the Bureau resolving the tax issues on the matter. aSEDHC 4. The facts analogous to all of these promulgated rulings are as follows: (a) The real estate developer is the registered owner of a parcel of land which undertook a real estate development project thereat by constructing a condominium building on said parcel of land in accordance with the provisions of Republic Act No. (R.A.) 4726, otherwise known as the Condominium Act; (Underlining supplied) Clearly, what is contemplated in the above mentioned RMO is the transfer of land and common areas by a real estate developer to the condominium corporation. In the instant case, CHINABANK was not the real estate developer which built the condominium project since it foreclosed the property subject of this ruling. Thus, it cannot invoke the said provision and avail of the privileges under the said RMO. Moreover, the transfer of the subject property from CHINABANK to IMPERIAL is subject to 6% creditable withholding tax pursuant to Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended, in relation to Section 2 (b) of Revenue Regulations No. 7-2003. The pertinent provisions of Section 2 (b) of Revenue Regulations No. 7-2003 provides that: Real properties acquired by banks through foreclosure sales are considered as their ordinary assets. However, banks shall not be considered as habitually engaged in the real estate business for purposes of determining the applicable rate of withholding tax imposed under Sec. 2.57.2 (J) of Revenue Regulations No. 2-98, as amended. Clearly, the transfer of the subject property from CHINABANK to IMPERIAL is also subject to 6% creditable withholding tax under Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended, in relation to Section 2 (b) of Revenue Regulations No. 7-2003. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue