BIR Ruling No. 486-12

July 30, 2012 BIR RULING NO. 486-12 Sec. 24 (D) (2) NIRC of 1997; BIR Ruling No. 035-10; BIR Ruling No. 053-10; BIR Ruling No. 252-11 Philippine Retirement Authority 29/F Citibank Tower, 8741 Paseo de Roxas, Makati City 1220 Attention: Mr. Veredigno P. Atienza General Manager Gentlemen : This refers to your letter dated December 19, 2011 requesting, on behalf of retiree-client, DR. ROLAND ALFONS RICK-LENZE, legal opinion on whether or not capital gains tax may be refunded upon acquisition of a second condo unit. aHIDAE It is represented that the Philippine Retirement Authority (PRA) is a government-owned and -controlled corporation (GOCC) mandated to promote the country as a retirement haven for foreign nationals and former Filipinos. Qualified applicants are issued the Special Resident Retiree's Visa (SRRV) with multiple indefinite entry privileges and option to reside permanently in the Philippines; that as a condition precedent for the issuance of the SRRV, they are required to remit the amount of US$50,000.00, US$20,000.00, US$10,000.00 or US$1,500.00 depending on the Scheme on which they are enrolled; that DR. ROLAND ALFONS RICK-LENZE ("Dr. Rick-Lenze" for brevity), a German national and a holder of Special Resident Retiree's Visa (SRRV), purchased a condominium unit at Unit 17B Amorsolo East Rockwell Center and established the same as his residence in the Philippines on 11 December 2003; that however, Dr. Rick-Lenze decided to sell the said condominium unit purposely to acquire a new unit; that pending the disposition of the first condominium unit, he acquired a new one using separate funds; that a legal opinion is requested on whether or not the capital gains tax paid by Dr. Rick-Lenze on the sale of the first residential condo unit may be refunded upon acquisition of the second condo unit; and that the tax implication for investment/s in Treasury Bonds by a retiree participant under the Program is likewise requested. In reply, please be informed that as a consequence of obtaining the Special Retiree Residents Visa resulting from the admission to the Philippine Retirement Program under Executive Order No. 1037, Dr. Rick-Lenze's status for Philippine tax purposes was in fact converted to that of a resident alien subject to Philippine income tax under Section 24 (A) of the Tax Code of 1997, as amended. ( BIR Ruling No. 053-10 dated September 14, 2010; BIR Ruling No. 252-11 dated July 26, 2011 ) As a resident alien, Dr. Rick-Lenze is subject to capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, on the sale of his condominium residence Unit 17B Amorsolo East Rockwell Center. However, the capital gains tax paid by Dr. Rick-Lenze on the sale of the first residential condo unit cannot be refunded upon acquisition of his second condominium unit. Section 24 (D) (2) of the Tax Code of 1997, as amended, provides that capital gains presumed to have been realized from the sale or disposition of principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition, shall be exempt from the capital gains tax imposed under Section 24 (D) (1) of the same Code, provided, that the historical cost or adjusted cost basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired, and that the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of your intention to avail of the tax exemption thus mentioned, and which can only be availed of once every ten (10) years. SACEca The same Section further provides that if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the selling price in order to determine the taxable portion for the purpose of computing the tax prescribed under Section 24 (D) (1) of the same Tax Code. The sale of a principal residence by a natural person may be exempted from capital gains tax under Section 24 (D) (2) of the Tax Code, provided that the requirements under Revenue Regulations (RR) No. 13-99, as amended by RR No. 14-2000, have been complied with. (BIR Ruling No. 035-10 dated August 27, 2010) As represented, the sale of Dr. Rick-Lenze's condominium residence was made after his acquisition of another condominium unit as his new residence, therefore, the proceeds from such sale of the first condominium unit cannot be said to have been fully utilized for the acquisition of a new residence. Moreover, there is no indication of his compliance of the requirements under the aforementioned Regulations. Premises considered, there is no legal basis to exempt the sale of Dr. Rick-Lenze's condominium unit from CGT or to refund the CGT he has paid on said sale upon his purchase of the new condominium unit. Because taxes are the lifeblood of the nation, the court has always applied the doctrine of strict interpretation in construing tax exemptions. A claim for exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. ( Paseo Realty & Development Corporation v. Court of Appeals, et al., G.R. No. 119286, October 13, 2004 , as cited in Davao Oriental Electric Cooperative, Inc. vs. The Province of Davao Oriental, G.R. No. 170901, January 20, 2009 ) Anent the request to be apprised on the tax implication for investment/s in Treasury Bonds by a retiree participant under the Program, this Office cannot give you a definite opinion due to inadequate factual antecedents upon which our opinion shall be based. 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, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. SITCcE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue