BIR Ruling No. 477-11

December 5, 2011 BIR RULING NO. 477-11 Sec. 27 (C) NIRC; BIR Ruling No. 143-05 Mr. Eduardo C. Rafer Luzarraga Subdivision, Labo, Camarines Norte Sir : This refers to your letter dated November 2, 2010 requesting for exemption from the payment of capital gains and documentary stamp taxes on the sale of a parcel of land by Government Service Insurance System (GSIS) in your favor. Documents submitted disclosed that GSIS is an institution created and existing pursuant to the provisions of Commonwealth Act (CA) No. 186. It is the registered owner of a parcel of land located at Lot 3, Block 7, Villa Corazon Subdivision I, Del Rosario, Naga City, covered by Transfer Certificate of Title No. 20695 of the Registry of Deeds for the City of Naga and containing an area of one hundred fifty (150) sq.m. On July 8, 2009, the GSIS executed a Deed of Absolute Sale transferring the above-described property in favor of the spouses Eduardo C. Rafer and Gracita O. Rafer for the total amount of one hundred fifteen thousand eight hundred (PhP115,800.00). In reply, please be informed that in a similar case, this Office ruled as follows: ". . . 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) of the Tax Code provides as follows: AHTICD '(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 tax/ordinary income subject to tax, unless there is a stipulation to the contrary. 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 are imposed on other domestic corporations which necessarily includes the payment of capital gains tax. Wherefore, in view of the foregoing, this Office holds that the sale of the aforesaid 78 lots by GSIS to GMC is neither subject to income tax nor to capital gains tax. However, GMC, as Vendee, and which is not exempt from the payment of any tax arising from the above-mentioned transaction shall be the one liable to pay the documentary stamp tax imposed under Section 196 of the Tax Code of 1997." (BIR Ruling No. 143-05 dated April 12, 2005 citing BIR Ruling No. DA-167-02 dated September 17, 2002) Applying the foregoing provision of law and ruling, the sale of the above-described parcel of land by GSIS in favor of spouses Eduardo C. Rafer and Gracita O. Rafer is not subject to capital gains tax. However, Eduardo C. Rafer and Gracita O. Rafer shall be the ones 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 are different, then this ruling shall be considered null and void. cSIACD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue