BIR Ruling No. 327-12

May 4, 2012 BIR RULING NO. 327-12 RA 7279; BIR Ruling No. 040-2010; BIR Ruling No. SH (006) 023-2010; BIR Ruling No. S-32-077-2000 San Sebastian Community Urban Land & Development Foundation, Inc. Purok Luhod-Luhod, Mandalagan Bacolod City Attention: Ms. Ma. Joy B. Jarabelo Housing Director Gentlemen : This refers to your letter dated April 6, 2011, requesting for capital gains tax exemption, on behalf of Smile Homeowners Association, Inc. (SHAI) on its purchase of a parcel of land from the Philippine National Bank (PNB) for proportionate distribution to its qualified member-beneficiaries pursuant to Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992. It appears that Philippine National Bank (TIN 000-188-209) is the registered owner of a lot covered by Transfer Certificate of Title (TCT) No. T-137668 of the Registry of Deeds for Bacolod City. The aforesaid property is situated at Puentebella Subd., Brgy. Taculing, Bacolod City with an area of 948 sq.m. On the other hand, SHAI (TIN 006-395-678) is a legal association of underprivileged and homeless citizens registered with the Housing and Land Use Regulatory Board (HLURB), Region VI, Iloilo City under Certificate of Registration No. 11263 dated November 9, 2006. On February 11, 2011 the above-stated parties executed a Deed of Absolute Sale whereby the owner transfers and conveys to SHAI the subject property for and in consideration of the sum of P474,000.00 payable thru the loan proceeds of SHAI's approved Community Mortgage Program (CMP) per Letter Guaranty dated August 28, 2009 under the CMP of the Social Housing Finance Corporation (SHFC), a subsidiary of the National Home Mortgage Finance Corporation (NHMFC). In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state that: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx (d) Exemption from the payment of the following: DIETHS (2) Capital gains tax on raw lands used for the project; xxx xxx xxx. Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and" the landowner who sold its property for use in a socialized housing project is exempt from the payment of capital gains tax. Such being the case, the sale of the above-mentioned property by PNB to SHAI is exempt from the capital gains tax. (BIR Ruling No. 051-96 dated April 12, 1996) However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, SHAI is liable to pay the documentary stamp tax on the documents conveying the afore-stated property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. It is, however, understood that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect the transfer of the land titles in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR). The CAR shall only be issued after the submission of the requirements provided under RMO 15-2003. (BIR Ruling No. 040-2010 dated August 27, 2010) Moreover, the transfer of the lots from the said association to the individual members thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real properties to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate said properties to the members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by SHAI to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. Finally, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling Nos. SH (006) 023-2010 dated May 17, 2010 and S-32-077-2000 dated August 14, 2000) IDTHcA The Master List of Members-Beneficiaries, consisting of sixteen (16) qualified individuals, as certified by the SHFC which are listed in Annex "A" hereof shall form part of this Ruling. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ATTACHMENT SMILE HOMEOWNERS ASSOCIATION, INC. Purok Kabukiran, Puentebella Subdivision, Barangay Taculing, Bacolod City List of Members-Beneficiaries No. Name 1 Pontillano, Reneboy A. 2 Alvarez, Norma L. 3 Sultan, Aileen M. 4 Marino, Lourdes C. 5 Llagas, Salvacion M. 6 Tizon, Roselyn M. 7 Samillano, Jona J. 8 Villanueva, Rene R. 9 Ruiz, Cecilia P. 10 Mijares, Delia C. 11 Taray, Estrelleta V. 12 Galon, Arlene G. 13 Vingno, Jocelyn V. 14 Pastera, Julio M. 15 Logatiman, Ma. Irna M. 16 Logatiman, Orlando M. Certified True: (SGD.) JONA J. SAMILLANO President Certified Correct: SOCIAL HOUSING FINANCE CORPORATION