Actual Consideration Should be Reflected in Deed of Sale

July 8, 1993 BIR RULING NO. 302-93 ACTUAL CONSIDERATION SHOULD BE REFLECTED IN DEED OF SALE 50 (b) 000-00 302-93 Urban Bank Urban Bank Square, Urban Ave. Makati, Metro Manila Attention: Atty . Santiago M . Varela AVP-Head, Legal Unit This refers to your letters dated October 29, 1992 and February 3, 1993 stating that Unit No. 106 of Le Metropole Condominium was originally purchased from Meridien by Mr. Ben P. Tagorda for the purchase price of P4,820,000.00 under a Reservation Agreement executed by and between Mr. Tagorda and Century Properties, Inc. (CPI), as Marketing Manager of Meridien; that on June 13, 1989, CPI acting as Marketing Manager for Meridien and as broker for Mr. Tagorda, offered to sell the said unit for P5,605,263.00, to you which offer you accepted and paid CPI P100,000.00 as earnest money; that on July 21, 1989, Ben P. Tagorda, in consideration of your payment of P5,605,263.00, formally assigned, transferred and conveyed in your favor all his rights, title and interests in Unit 106 through a Memorandum of Agreement executed by and among Meridien as owner-developer. Ben P. Tagorda as assignor, you as assignee and CPI as Marketing Manager of Meridien and Broker for Ben P. Tagorda; that the application of the purchase price under the Memorandum of Agreement are as follows: a) To Ben P. Tagorda the amount of P785,263.00 and P1,015,539.30 representing reimbursement of payments previously made by Mr. Tagorda to CPI, and b) To CPI for the account of Meridien the amount of P3,304,460.70 representing the balance of the purchase price; that as provided for under the Memorandum of Agreement you paid the total amount of P5,605,263.00 from July 28, 1989 to June 30, 1990; that the amount of P1,121,500.00 was, however, refunded to you in October 1990 due to a reduction of the floor area of Unit 106 from 213.20 sq.m. to 168.34 sq.m. that taking into account the area reduction of Unit No. 106, you paid the amount of P4,483,763.00; that the said amount was the net purchase price paid by you for the unit which you requested Meridien to reflect as the purchase price on the Deed of Sale; and that Meridien, however, has repeatedly and has unjustifiably refused to reflect the amount of P4,483,763.00 paid by you for Unit No. 106 as the consideration purchase price in the Deed of Sale. cdtech Based on the foregoing representations, you now in effect request for a ruling on the following queries: "a. Inasmuch as the amount of P4,483,763.00 was the actual price paid by Urban Bank for Unit No. 106, should not this amount be reflected as the purchase price or consideration in the Deed of Sale? "b. Assuming the Bank agrees to the request of Meridien that only the amount of P3,698,500.00 be reflected as purchase price in the Deed of Sale, may the Bank legally deduct as expense for tax purposes, the amount of P785,263.00 which the Bank paid to Meridien as part of the purchase price and which amount Meridien, in turn, paid to Ben P. Tagorda as assignor under the Memorandum of Agreement? In reply, please be informed that under Section 196 of the Tax Code, as amended, when it appears that the amount of the documentary stamp tax payable thereunder has been reduced by incorrect statement of the consideration in any conveyance, deed, instrument or writing subject to such tax, the Commissioner, provincial or city treasurer, or other revenue officer, shall from the assessment rolls or other reliable source of information, assess the property of its true market value and collect the proper tax due thereon. From the foregoing provision of Section 196 of the Tax Code, it is clear that the actual consideration relative to the sale of realty should be reflected in the sales document or Deed of Sale effecting the sale transaction. Accordingly, your first query is answered in the affirmative. As regards your second query, the answer is in the negative, considering 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 based on the gross selling price which for this purpose shall mean the consideration stated in the sales document or the fair market value/zonal value, whichever is higher. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue