BIR Ruling No. 360-14

September 22, 2014 BIR RULING NO. 360-14 A.O. 241, 10-4-91; E.O. 149, 12-28-93; Sec. 32 (B) (7) (b), NIRC; BIR Ruling No. 185-13 Presidential Commission on Good Government IRC Building, EDSA, Mandaluyong City Attention: Atty. Richard R.T. Amurao Commissioner Gentlemen : This refers to your letters dated July 4, 2013 and March 31, 2014 requesting for a clarificatory or a supplemental ruling extending the exemption granted to the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) under BIR Ruling No. 185-2013 to include exemption from capital gains tax. In BIR Ruling No. 185-2013, we ruled as follows: "You represented that certain properties owned by the Independent Realty Corp., (IRC), Mid-Pasig Land Development Corp., (MPLDC) and Mapalad Realty Corp., (Mapalad) were surrendered to the government by Mr. Jose Y. Campos, a known Marcos crony. To enumerate: a) Hans Menzi Compound (3,875.57 sq.m. located in Baguio City with TCT No. 35742) b) JY Campos Compound (17,516 sq.m. located in Baguio City with TCT No. 49479-49481) c) Banaue Inn Compound (2,677 sq.m. located in Baguio City with TCT No. 37014) d) Wigwam Compound (1,146 sq.m. located in Baguio City) e) IRC GMA Property (64,699 sq.m. located in GMA, Cavite with TCT No. 31996) HEaCcD f) Wack-Wack Property (2,012 sq.m. located in Mandaluyong City with TCT No. 390162) g) IRC Mapalad Property (64,699 sq.m. located at Roxas Boulevard, Paraaque City with TCT 010-2011001197 to 200) In City of Pasig vs. Republic of the Philippines (G.R. 185023, August 24, 2011), the Supreme Court ruled that the Republic of the Philippines is the presumptive owner of the properties of surrendered by Jose Y. Campos. The Court held: "As correctly found by the RTC and the Court of Appeals, the Republic of Philippines owns the properties . Campos voluntarily surrendered MPLDC, which owned the properties, to the Republic of the Philippines. . . . xxx xxx xxx Even as the republic of the Philippines is now the owner of the properties in view of the voluntary surrender of MPLDC by its former registered owner, Campos, to the State, such transfer does not prevent a third party with a better right from claiming such properties in the proper forum. In the meantime, the Republic of the Philippines is the presumptive owner of the properties for taxation purposes ." (Emphasis supplied) The same treatment above can be applied to the other properties surrendered by Jose Y. Campos which are subject of this ruling. Therefore, for internal revenue tax purposes, the Republic of the Philippines, thru the PCGG, may be considered as the presumptive owner of the aforesaid properties. In this connection, Administrative Order No. 241 dated October 4, 1991, granted the PCGG the authority to dispose of recovered and surrendered properties. This Administrative Order provides: cTECHI "1. The Asset Privatization Trust, hereinafter referred to as the Trust, shall transfer to the Presidential Commission on Good Government (PCGG) control and disposal responsibility of assets, shares of stocks, and such other properties referred to in paragraph 1(a) of Administrative Order (AO) No. 43, s. of 1987, recovered from, turned over by, or pertaining to, Ms. Jose Y. Campos. 2. The PCGG shall, in relation to such assets, shares of stocks, and other properties, exercise such powers or perform such functions, as defined in AO No. 231, s. of 1991." (Emphasis supplied) As represented, the PCGG, with its intent to wind up the said companies and accomplish its legal mandate of privatizing the surrendered properties, has scheduled the properties of the aforementioned corporations for disposal through public bidding. In reply, Section 32 (B) (7) (b) of the National Internal Revenue Code (NIRC) of 1997, as amended expressly excludes from gross income, and exempts from income tax, the income derived from the discharge of any essential governmental functions accruing to the Government of the Philippines or to any of its political subdivisions. Since the proposed sale at public auction shall be conducted by the PCGG is pursuant to its mandate or in the exercise of essential governmental functions accruing to the Government of the Philippines, then it is exempt from income taxes, and consequently, from withholding taxes. Please also be informed that the Department of Justice, in DOJ OPINION NO. 108, s. 1987 dated October 16, 1987 explained that: 'Incidentally, it may be mentioned that under Executive Order No. 286 dated July 25, 1987, which created the Sequestered Assets Disposition Authority (SADA) to oversee the disposition of, among others, assets and properties voluntarily surrendered to the PCGG, provides for the exemption of SADA from the payment of taxes, fees, and charges under Section 5, thereof, which reads as follows: EAcIST 'Sec. 5. Exemptions from Taxes, Fees and Other Charges. The provisions of any law to the contrary notwithstanding, the Authority as well as the sequestered corporations and assets transferred to it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the said corporations to the Authority and/or from the National Government to a private acquisition or buyer imposed by the National Government or any subdivision thereof: Provided, That in cases where government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, fees, charges, imposts, and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Authority. The sale or transfer of such corporations or assets shall not be enjoined or hindered by the existence of any liens by way of taxes, fees, charges or other assessments in favor of the government at the time of sale or transfer: Provided, That the proceeds from such sale or transfer shall be subject to the tax lien and shall first be applied to satisfy such obligations secured by such liens.' Subsequently, this exemption from all taxes, fees, charges, imposts, and assessments was given to the PCGG when SADA was transferred to the PCGG by virtue of Executive Order No. 149 dated 28 December 1993 on the "Streamlining of the Office of the President" which provides: "3.3 Transfer of Regular Agencies for Administrative Supervision and Eventual Abolition. The following agencies from the Office of the President are hereby transferred to the departments and/or agencies indicated hereunder , and shall be eventually abolished in accordance with law and the terms of Section 5 of this Executive Order: ISAcHD xxx xxx xxx (e) The Sequestered Assets Disposition Authority to the Presidential Commission on Good Government ; xxx xxx xxx 5.3 Scope of Transfer. Any transfer of an agency or corporation shall include the functions , appropriations, funds, records, equipment, facilities, other properties, choses in action, and assets and liabilities of the transferred agency or corporation, as well as the personnel thereof." (Emphasis supplied) In view of the foregoing, this Office is of the opinion and hereby rules that the transfer of the aforesaid properties by PCGG to private individuals in a sale at public auction is exempt from income tax, withholding taxes, value-added tax (when applicable), and documentary stamp tax." As stated in the previous ruling, the properties being presumptively owned by the Republic of the Philippines, and the PCGG being mandated by law to dispose of the same, the sale at public auction of the surrendered properties are exempt from income tax, withholding taxes, value-added tax (when applicable), and documentary stamp tax, as well as capital gains tax. 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