5% Capital Gains Tax Exemption on the Sale of PEMA

July 21, 1988 BIR RULING NO. 350-88 21 (c) 000-00 350-88 Gentlemen : This refers to your letter dated June 15, 1988 requesting in behalf of your client, the Philbank Employees Association (PEMA) a ruling as to whether or not a labor union is required to pay capital gains tax when it sells its property. It is represented that PEMA is a legitimate nationwide labor Union of PNB employees organized and existing since 1957; that it bought from PNB a 1,000 square meter lot located at the back of the PNB Branch at Aurora Blvd., Cubao, Quezon City in 1968 at a book value of P25,000.00 with the condition that it shall be used exclusively for the civic upliftment of the PEMA; that presently, the PEMA has decided to sell the said property to its previous owner, the PNB, for not less than P5 Million; and that the proceeds to be derived from this contemplated sale shall be used for the benefit of its members like the payment of their retirement claims and other mutual aid benefits and the funding of the educational program, cooperative, housing, welfare and other projects. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, only individuals, including estates and trusts shall be taxed on the capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, PEMA not being an individual, estate or trust is not subject to the 5% capital gains tax when it sells its said property of PNB. However, any gain realized from the contemplated sale of PEMA to PNB shall be subject to income tax under Section 24 of the Tax Code, as amended, since your tax exemption as a legitimate labor organization under Article 242 of P.D. No. 442 or the Labor Code of the Philippines, has been withdrawn by Executive Order No. 93 effective March 10, 1987. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner