BIR Ruling No. 472-11

December 5, 2011 BIR RULING NO. 472-11 Secs. 27 (D) (5), 27 (C), 173, 196; BIR Ruling No. 140-97; BIR Ruling No. DA-143-05; BIR Ruling No. DA-(C-167) 438-09; BIR Ruling No. DA (C-250) 641-09 Government Service Insurance System Cebu Regional Office Leon Kilat St., Cebu City 6000 Attention: Ma. Fatima R. Alvarez Regional Manager Gentlemen : This refers the docket referred by Revenue Region No. 13-Cebu City dated June 7, 2010 received by this Office on June 22, 2010 relative to the sale of land by the Government Service Insurance System (GSIS) in favor of spouses Juan and Jean Lumanas of Tagbilaran City, Bohol. Documents submitted and the Memorandum from the Revenue District Office No. 48-Tagbilaran City, disclosed that the GSIS, with Taxpayer Identification No. 000-766-810-000, is the registered owner of the Lindaville Subdivision, Phases I and II, Dao and San Isidro Districts, Tagbilaran City; it provides residential lots with low-cost housing units to individuals who have not owned residential dwellings which is payable on installment basis; that on 05 May 2010, GSIS executed a Deed of Absolute Sale in favour of spouses Juan and Jean A. Lumanas over a residential lot with a housing unit located at Block 25, Lot 6, Lindaville Subdivision, Phase II, Tagbilaran City covered by Transfer Certificate of Title (TCT) No. T-39362; that the property was sold for a consideration of One Hundred Fifty Thousand Pesos (P150,000.00); that an exemption from capital gains tax on the sale is being claimed by GSIS; and that in support of its claim the following documents were submitted: 1. Copy of Deed of Absolute Sale dated May 5, 2010; 2. Copy of BIR Form 1706 (Capital Gains Tax Return); 3. Copy of BIR Form 2000 (Documentary Stamp Tax Return); 4. Copy of Revenue Official Receipt for payment of documentary stamp tax; IaSAHC 5. Copy of TCT No. 39362; 6. Copy of Tax Declaration Nos. 2008-121-0666 (lot) and 2008-12b-0397 (building); and 7. Copy of the vicinity map In reply, please be informed that 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. CAIHTE 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. 39. 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. 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. . . ." It was thus opined in BIR Ruling No. 140-97 dated December 29, 1997, that the GSIS is exempt from all internal revenue taxes. 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 properties. 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. 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 Juan and Jean Lumanas is not subject to capital gains tax. However, Spouses Juan and Jean Lumanas 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. aSTAcH 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." ScTIAH IN VIEW OF THE FOREGOING, this Office is of the opinion that the sale by GSIS of the residential lot with a housing unit at Lindaville Subdivision, Phase II, Tagbilaran City covered by TCT No. T-39362, to spouses Juan and Jean Lumanas is not subject to capital gains tax. Spouses Juan and Jean Lumanas shall, however, be liable to pay the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. 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