BIR Ruling No. 350-15

October 8, 2015 BIR RULING NO. 350-15 RA No. 7279; RA 7160; BIR Ruling No. 476-13; BIR Ruling No. 201-14 Office of the City Mayor MANILA Attention: Victoria S. Clavel City Government Department Head III Gentlemen : This refers to your letters dated December 14, 2012 and May 6, 2013, requesting for a ruling that the sale by Ramiro S. De Guia, Erlinda De Guia, Elena De Guia, Teodora De Guia-Timario, Dina De Guia, Ronaldo De Guia, Ma. Cecilia De Guia, Raymond De Guia, Erlindo N. De Guia, Eunilo N. De Guia, Ednora De Guia-Franco, Egidio De Guia, Ermelo N. De Guia, Emmanuel N. De Guia and Edelwina De Guia-Parungao (hereinafter collectively referred to as DE GUIAS) to the City of Manila by virtue of Expropriation Order intended for the latter's socialized housing program is exempted from payment of capital gains tax and other fees allowed under R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992. DEIHAa Documents submitted that the DE GUIAS are the absolute registered owners of four (4) parcels of land covered by Transfer Certificates of Title (TCT), to wit: Tax Declaration TCT No. No. Lot No. Area (sq. m.) 231094 1 C-007-00134 2-E-5 81.22 215596 C-007-00042 73 2 690.10 C-007-00042 79 3 0.10 2 4 1,562.50 6 5 5.10 231097 C-007-00137 2-E-8 130.99 231175 C-007-00202 1-E-1 99.72 total area 2,569.73 ======== all issued by the Registry of Deeds for the City of Manila; that on May 4, 2012, an Expropriation Order (Civil Case No. 9472282 for Eminent Domain) was rendered by the Regional Trial Court of Manila, Branch 16 relative to the expropriation of the Seven Hundred Eighty Six and 78/100 square meters (786.78 sq.m.) portion of the above-mentioned properties for just compensation amounting to P3,933,900.00. By virtue of the City Ordinance, the said expropriated property shall be awarded to qualified and bonafide occupants thereat pursuant to the Land for the Landless program of the City of Manila under Ordinance No. 7833 dated January 11, 1994. In reply, please be informed that this Office ruled in BIR Ruling No. 476-13 dated December 18, 2013 that the involuntary transfers of real properties, including expropriation sale, are subject to applicable taxes, depending on whether the subject properties are classified as capital assets or ordinary assets. Moreover, Section 19 of Republic Act No. 7160 provides the basis for the exercise of the power of eminent domain of local government, which provides that: "SECTION 19. Eminent Domain. A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property." DcHSEa As an instrumentality of the government, a local government unit, which acts for the purpose of accomplishing government policies and objectives and extending essential services to the people, performs governmental and not proprietary functions. (Peoples' Homesite and Housing Corporation vs. Court of Industrial Relations, 150 SCRA 296, 310 [1987]) Thus, in line with the foregoing, it is a declared State policy as laid down in Republic Act No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", to provide decent and affordable housing to the underprivileged and homeless citizens. (BIR Ruling No. 201-14 dated June 17, 2014) Lastly, the pertinent portion of Section 20 of RA No. 7279, reads: "Sec. 20. Incentives for the 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: (1) . . . (2) Capital gains tax on raw lands used for the project; CTHaSD xxx xxx xxx" Pursuant to the aforementioned provision, the DE GUIAS, as owners, of the raw lands are exempt from the payment of capital gains tax on the conveyance under expropriation, in so far as the 786.78 sq.m. portion out of 2,569.73 sq.m. covered by above-mentioned TCTs in favor of the City of Manila for use in its socialized housing project. Upon application for exemption, a lien on the titles of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to R.A. 7279. (BIR Ruling No. 201-14 dated June 17, 2014) However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the actual consideration of the property transferred, considering that one of the contracting parties is the Government. (BIR Ruling No. 201-14 dated June 17, 2014) 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 of Internal Revenue Footnotes 1. Formerly TCT No. 105202. 2. Blk. No. 3008. 3. Id. 4. Blk. 3018. 5. Blk. No. 3026.