BIR Ruling No. 349-11

September 28, 2011 BIR RULING NO. 349-11 Sec. 27 (D) (5); 000-00 Eleanor F. Fazzini 11 Mars St. Bel-Air 1, Makati City Madam : This refers to your letter dated January 7, 2011 requesting for tax exemption from the payment of capital gains tax on the stock exchange agreement. It is represented that Spouses Roberto Fazzini with Tax Identification Number 115-464-349-000 and Eleanor Fazzini with Tax Identification Number 115-273-621-000 entered into a stock purchase agreement with Foundation Specialist, Inc. with Tax Identification Number 000-118-991-000. Spouses Roberto Fazzini and Eleanor Fazzini sold in favor of Foundation Specialist, Inc., its twelve million four hundred fifteen thousand and three hundred ninety three (12,415,393) common shares in exchange of all rights, titles and interest on three (3) condominium units ( i.e., units in Le Metropole, Eduarosa Tower and Chateau de Baie), one vehicle (1) and one million pesos (P1,000,000.00); that on May 4, 1993, Foundation Specialist, Inc. executed a Deed of Absolute Sale in favor of Spouses Roberto Fazzini and Eleanor Fazzini, covering the Condominium Unit in Le Metropole covered by Condominium Certificate of Title No. 21291. Now, you are requesting for a ruling that the transfer of Condominium Certificate of Title No. 21291 be exempt from the payment of capital gains tax. In reply, please be informed 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). As can be seen in the Deed of Absolute Sale dated May 4, 1993, it was specifically stated that "The seller shall pay the capital gains tax and documentary stamp tax on the transfer of the condominium unit. . . . ." Inasmuch as the transfer of the Condominium Unit by Foundation Specialists, Inc. to Sps. Roberto Fazzini and Eleanor F. Fazzini is by virtue of the Deed of Absolute Sale executed on May 4, 1993, and aforesaid transfer is entered into pursuant to a Stock Purchase Agreement dated May 4, 1993 of which part of the consideration for the transfer of twelve million four hundred fifteen thousand and three hundred ninety three (12,415,393) common shares is the Condominium Unit in Le Metropole covered by Condominium Certificate of Title No. 21291, it is subject to capital gains tax or creditable withholding tax and the corresponding documentary stamp tax respectively imposed under Section 27 (D) (5) of the Tax Code of 1997 or Revenue Regulations No. 2-98, as the case may be, and Section 196 of the said Code. 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 null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue