BIR Ruling No. 518-12

August 13, 2012 BIR RULING NO. 518-12 Color-Rite Trading and Painting Contractors, Inc. No. 21 New Manila Condominium, Unit G-06 New Manila, Quezon City Attention: Luis Mario Del Rosario Jose President Sir : This refers to your letter dated August 23, 2011 relative to 1st Indorsement dated August 18, 2011 of Revenue Region No. 7, Quezon City, requesting for the exemption from capital gains tax on the Deed of Sale between AFP Retirement and Separation Benefits System and COLOR-RITE TRADING AND PAINTING CONTRACTORS, INC. Documents disclosed that AFP Retirement and Separation Benefits System (AFPRSBS), with TIN 001-044-461-000, is the registered owner of a condominium unit with an area of 87.60 sq.m. that is covered by Condominium Certificate of Title No. RT-466 (4184) of the Registry of Deeds of Quezon City; that on 11 July 2005, AFPRSBS executed a Deed of Transfer in favor of COLOR-RITE TRADING AND PAINTING CONTRACTORS, INC. for a consideration of Five Hundred Thousand Pesos (PhP500,000.00); and that AFPRSBS claims that the sale is exempt from capital gains tax and invokes Section 2 (c) of Presidential Decree (P.D.) No. 361 as its basis therefor. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. The case of Alzaga, et al. vs. Sandiganbayan, et al. (G.R. No. 169328 dated October 27, 2006) provides a brief background of the AFPRSBS: SDIACc "The AFPRSBS was established by virtue of P.D. No. 361 (1973) in December 1973 to guarantee continuous financial support to the AFP military retirement system, as provide for in R.A. No. 340 (1948). It is similar to the Government Service Insurance System (GSIS) and the Social Security System (SSS) since it serves as the system that manages the retirement and pension funds of those in the military service. The AFPRSBS is administered by the Chief of Staff of the AFP through a Board of Trustees and Management Group, and funded from congressional appropriations and compulsory contributions from members of the AFP; donations, gifts, legacies, bequests and others to the system; and all earnings of the system which shall not be subject to any tax whatsoever." AFPRSBS banks on the provision of Section 2 (c) of P.D. No. 361 in claiming exemption from capital gains tax on its sale of property. This provision states: "SEC. 2. The System shall be funded as follows: xxx xxx xxx (c) All earnings of the Systems which shall not be subject to any tax whatsoever." However, Executive Order (EO) No. 93 dated December 17, 1986 effectively withdrew the tax exemption granted to AFPRSBS under PD No. 361. Section 1 thereof states: "Sec. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except: a) those covered by the non-impairment clause of the Constitution; DaCTcA b) those conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory; c) those enjoyed by enterprises registered with: (i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended; (ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended; (iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, as amended; d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction No. 1416; e) those conferred under the four basic codes namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended. DCSETa f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board." Furthermore, AFPRSBS is not among those government corporations, agencies or instrumentalities exempt from income tax mentioned in Section 27 (C) of the Tax Code of 1997, as amended. Expressio unius est exclusio alterius , the mention of one thing implies the exclusion of another thing not mentioned. If a statute enumerates the things upon which it is to operate, everything else must necessarily and by implication be excluded from its operation and effect. 1 Section 27 (C) provides: "Section 27. Rates of Income tax on Domestic Corporations . (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), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity." Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. 2 Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. 3 (BIR Ruling No. 310-2011 dated August 22, 2011) ADSIaT IN VIEW OF THE FOREGOING, this Office is of the opinion that the sale by AFP Retirement and Separation Benefits System of a condominium unit with an area of 87.60 sq.m. and is covered by Condominium Certificate of Title No. RT-466 (4184), is subject to capital gains tax. Likewise, the sale is also subject to documentary stamp tax imposed under Section 196 in relation to Section 173 of the Tax Code of 1997, as amended, which has been paid on August 2, 2011 as certified by BIR Revenue District Office No. 40-Cubao. 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 Footnotes 1. Tolentino vs. Paqueo , 523 SCRA 377. 2. Jaka Investment Corporation vs. Commissioner of Internal Revenue , G.R. No. 147629 citing Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue , G.R. No. 133834, August 28, 2006, 499 SCRA 664, 667-668. 3. Republic vs. Caguioa , G.R. No. 168584, October 15, 2007.