BIR Ruling No. 339-11

September 7, 2011 BIR RULING NO. 339-11 R.A. 8291; Sec. 27 (C) NIRC; BIR Ruling No. 140-97; BIR Ruling No. DA-167-02; BIR Ruling No. DA-143-05; BIR Ruling No. DA-(C-218) 563-09 Government Service Insurance System BICOL REGIONAL OFFICE GSIS Bldg., Del Rosario, Naga City Attention: Ms. Lolita M. Pureza Regional Manager Madam : This refers to your letter dated 12 November 2010 requesting confirmation of the tax exemption of the Government Service Insurance System (GSIS) , particularly exemption from capital gains tax and documentary stamp tax on the sale by GSIS of its housing units, particularly that of Mr. and Mrs. Jogar G. Tosoc, and that Revenue Delegation Authority Order (RDAO) No. 003-09 should not apply to GSIS. It is represented that Section 39 of Republic Act No. 8291, amending P.D. No. 1146, otherwise known as the "Government Service Insurance System Act of 1997" provides for the exemption from all taxes; that RDAO No. 003-09 dated May 15, 2009 should not be made to apply to GSIS as it is exempt from all taxes under the aforesaid law; that on 21 October 2010, the GSIS (TIN 000-766-810) executed a Deed of Absolute Sale in favour of spouses Jogar B. Tosoc (TIN 146-071-597) and Hannah Lizette B. Tosoc (TIN 124-193-702) ("spouses Tosoc" for brevity) over a parcel of land covered by Transfer Certificate of Title No. 25990 and is located at Lot 13 Block 12, Villa Corazon Subdivision II, Del Rosario, Naga City; that the consideration for the property was for Two Hundred Twenty Thousand Pesos (P220,000.00); and that spouses Tosoc have paid the documentary stamp tax (DST) as certified by the BIR Revenue District Office No. 65-Naga City. In reply, please be informed that Section 4 of the 1997 Tax Code vests on the Commissioner of Internal Revenue the power to interpret tax laws, subject to review by the Secretary of Finance. This includes the power to issue rulings of first impression or to reverse, revoke, or modify any existing rulings of the Bureau. The power is exclusive and original. Section 7 of the same Tax Code also provides that the Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Going to the issue at hand, Section 39 of Republic Act No. 8291, amending P.D. No. 1146, otherwise known as the "Government Service Insurance System Act of 1997," states: "SEC. 38. Exemption from Tax, Legal Process and Lien . It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding any law to the contrary, the GSIS, its assets, revenues, including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall continue unless expressly, and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect. CDESIA Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of the national government to secure such solvency or liability. . . ." In cases of sale, exchange or disposition of lands and/or buildings owned by a corporation, which are not actually used in its business and are treated as capital assets, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the said transactions, based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher, of such lands and/or buildings. (Section 27 (D) (5), Tax Code of 1997) However, when the lands and/or buildings subject to sale, exchange or disposition are actually used in the business of a corporation and are classified as ordinary assets, the transaction is subject to ordinary income, and not capital gains tax, which includes any gain from the sale or exchange of property which is not a capital asset as defined in Section 39 (A) (1) of the same Code. (Section 22 [Z], Tax Code of 1997) On the other hand, Section 27 (C), supra provides as follows: "(C) Government-owned or -Controlled Corporations, Agencies or Instrumentalities. The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity." It is clear from the foregoing provisions, that in cases of sale, exchange or disposition by a corporation of lands and/or buildings classified as capital assets/ordinary assets, the burden of paying the 6% capital gains tax/creditable withholding tax rests upon the seller/transferor because the latter is the one who realized the capital gains/ordinary income subject to tax, unless there is a stipulation to the contrary. In the instant case, GSIS is the one directly liable to pay the corresponding taxes due on the sale transaction, it being the registered owner of the subject property. However, Section 27 (C) of the Tax Code of 1997 provides, among others, that GSIS is not liable to pay such rate of tax as imposed on other domestic corporations which necessarily includes the payment of capital gains tax. In BIR Ruling No. 140-97 dated December 29, 1997 , the BIR had earlier ruled that the GSIS is exempt from all internal revenue taxes, to wit: "In view of the foregoing, it is the opinion of this Office that the GSIS is exempt from all internal revenue taxes. Accordingly, the sale or conveyance of the subject properties by GSIS to VPVD shall be exempt from the ordinary corporate income tax and consequently from the expanded creditable withholding tax." Confirmation of the GSIS' tax exemption has led to the issuance of several rulings for tax exemption on particular transactions as in this case, a conveyance by the GSIS of its housing units. Hence, in BIR Ruling No. DA-143-05 dated April 12, 2005 citing BIR Ruling No. DA-167-02 dated September 17, 2002 , this Office ruled that "Accordingly, the burden of paying the capital gains tax rests upon the GSIS which is exempt from the payment of such tax and therefore, Viron, being the buyer, has no obligation to pay the capital gains tax." Applying the foregoing provision of law and rulings, the sale of the abovedescribed parcel of land by GSIS in favor of spouses Tosoc is not subject to capital gains tax. (BIR Ruling No. DA-(C-218) 563-09 dated September 22, 2009) CTIEac However, spouses Tosoc shall be liable to pay the documentary stamp tax imposed under Section 196 in relation to Section 173 of the Tax Code of 1997, as amended. It is noted that the spouses have accordingly paid and filed the return for the documentary stamp tax due on the sale transaction as certified by the BIR Revenue District Office. BIR Ruling No. DA-167-02 further held as follows: "However, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, by the person making, signing, issuing, accepting or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines: Provided, that whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. (Sec. 173, 1997 Tax Code) Thus, since Viron is not exempt from the payment of any tax arising from the above-mentioned transaction, it shall be liable to pay the documentary stamp tax on deeds of sale and conveyances of real property being imposed under Section 196 of the Tax Code of 1997." IN VIEW OF THE FOREGOING, this Office is of the opinion that the sale by GSIS of the residential lot covered by TCT No. 25990 located at Lot 13, Block 12, with a housing unit at Villa Corazon Subdivision II, Del Rosario, Naga City, to spouses Jogar and Hanna Lizette Tosoc is not subject to capital gains tax. However, spouses Tosoc shall be liable to pay documentary stamp tax imposed under Section 196 in relation to Section 173 of the Tax Code of 1997, as amended. The Revenue District Office concerned is hereby mandated to issue the Certificate Authorizing Registration (CAR) and/or the Tax Clearance Certificate on the subject properties, after receiving all the required documents for its processing. 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 as represented are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue