Exemption from the Payment of Transfer Tax and Registration Fee

November 14, 1988 BIR RULING NO. 538-88 24 (a) 179-86 538-88 Gentlemen : This refers to your letter dated September 20, 1988 addressed to the Honorable, the Secretary of Finance requesting a ruling to the effect that you are exempt from transfer tax, documentary stamp tax, capital gains tax and registration fee which you are being required to pay by the Metropolitan Manila Commission (MMC) and the Register of Deeds of Makati on your purchase of certain real properties from China Banking Corporation and Ayala Corporation situated at Ayala Avenue, Makati, Metro Manila. In reply thereto, I have the honor to inform you that Section 21(e) of the Tax Code, as amended is explicit that only individuals, including estates and trusts are liable to the 5% capital gains tax prescribed therein. Such being the case, gains derived by corporations are subject not to the said 5% capital gains tax but to the corporate income tax prescribed under Section 24(a) of the same Code, as amended, whether such gains are capital gains within the meaning of Section 33(a) of the Tax Code or ordinary income within the meaning of Section 20(Z) of the same Code, as amended by Executive Order No. 37. In the case of sale of real property, it is the seller thereof who is liable for the payment of income tax or of the capital gains tax since he is the one presumed to have realized capital gains from the sale of the real property classified as capital assets. Likewise, it is also the seller thereof who is liable for the payment of the documentary stamp tax pursuant to Section 173 of the Tax Code, as amended. In other words, as purchaser of the aforementioned properties, you are not liable to the payment of the capital gains tax under Section (24(e) of the Tax Code, as amended. Moreover, even if you are the seller of the property in this case, you are not liable for the payment of the ordinary corporate income tax because you are exempt from the payment of any and all taxes (income tax) imposed by Section 24 of the Tax Code pursuant to Presidential Memorandum Order No. 42 effective September 26, 1986 amending further Section 24(c) of the Tax Code as amended by Executive Order No. 37. Finally, as sellers of the aforementioned real properties, it is China Banking Corporation and the Ayala Corporation who are liable for the payment of the ordinary corporate income tax and the documentary stamp tax imposed by Sections 24(a) and 196 of the Tax Code as amended. As regards your request for exemption from the payment of transfer tax and registration fee which you are required to paid by the MMC and the Register of Deeds of Makati, the same should be directed to the Department of Finance, Manila which has jurisdiction on the matter. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner