BIR Ruling No. 568-12

September 11, 2012 BIR RULING NO. 568-12 Sections 57 (B), 188, 195 & 196 of the Tax Code of 1997; RR No. 6-2001; RR No. 17-03 First Solid Property Development, Inc. Paliparan 1, Dasmarias Cavite 4114 Attention: Nancy Ong Hsieh Chairman Gentlemen : This refers to your letter, dated May 6, 2011, requesting for a legal opinion on the proper reckoning period for the payment of the creditable withholding tax under Revenue Regulations No. 2-98 , implementing Section 57 (B) of the Tax Code of 1997. TAacHE It is represented that First Solid Property Development, Inc. ("FSPDI", for brevity) is an accredited developer pursuant to Home Development Mutual Fund (HDMF) Circular No. 259 under window 1 (Regular)-Contract to Sell (CTS)/Real Estate Mortgage (REM) with Buyback Guarantee scheme; that under the HDMF Circular No. 259, the said scheme has the following features: a. The developer shall receive, evaluate, pre-process and approve the housing loan applications of the HDMF's member-borrowers in accordance with the applicable Guidelines of the Pag-IBIG Housing Loan Program; b. The developer shall buy back CTS/REM accounts that default or are affected by breach of warranties during the first two years of the loan; c. The developer shall execute a Contract-to-Sell with the Pag-IBIG member to cover the purchase of the residential property or lot used as collateral for the Pag-IBIG housing loan of the member; d. The developer shall execute a Deed of Assignment assigning the CTS in favor of HDMF which shall be annotated in the title of the property; e. The developer shall convert the security of eligible accounts from CTS to REM not later than the 24th month from date of loan takeout; and f. Transfer of title to the property is not a requisite in the granting of the loan application and such transfer shall take place only within a period of two (2) years from the date of loan take-out and after receipt of formal notification from HDMF to convert the security of eligible accounts from CTS to REM. In reply thereto, please be informed that pursuant to Revenue Regulations (RR) No. 6-2001 dated July 31, 2011, amending RR No. 2-98 , the following rules are provided for buyers, engaged or not engaged in trade or business, of real property classified as ordinary asset: "SEC. 2.57.2. Income payment subject to creditable withholding tax and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset cIaCTS xxx xxx xxx (ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the gross selling price or fair market value of the property, whichever is higher, on the first installment. xxx xxx xxx" (emphasis supplied) Likewise, RR No. 6-2001 laid down the rules on the period for the filing of the withholding tax return and the payment of the proper tax thereon, thus: "SEC. 2.58. Returns and Payment of Taxes Withheld at Source. xxx xxx xxx (2) WHEN TO FILE (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed and payments should be made, within ten (10) days after the end of each month , except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year. (b) With respect, however, to taxpayers, whether large or non-large, who availed of the electronic filing and payment (EFPS), the deadline for electronically filing the applicable withholding tax returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the deadlines set above ." (emphasis supplied) Based on the foregoing, the appropriate creditable withholding tax, in the case of HDMF grant or release of housing loans, shall be withheld upon release or receipt of the loan and should be remitted based on the deadline provided under the above quoted provisions of RR 6-2001. Furthermore, in case of sale of real property paid under installment payment or deferred payment basis, the payment of the documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997 accrues only upon the execution of the Deed of Absolute Sale but the basis for the imposition thereof shall be the gross selling price or fair market value of the property, whichever is higher, at the time of the execution of the Contract to Sell in accordance with RR No. 17-2003 dated March 31, 2003. However, the notarial acknowledgments on the Contract to Sell and the Deed of Assignment are subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. Likewise, the Real Estate Mortgage/Loan Agreement executed by and between the HDMF and the client/unit purchaser is subject to the documentary stamp tax under Section 195 of the same Code. AaDSEC Finally, in the case of sale of property on installment basis or deferred payment basis where the Contract to Sell is always executed before the execution of the Deed of Sale, the said Contract to Sell must be attached to the Deed of Absolute Sale executed upon completion of the payments and the duly notarized original duplicate copy of both documents must be presented to the RDO having jurisdiction of the place where the property is located for validation of the correctness of payment of all applicable taxes before the issuance of CAR/TCL. (RR No. 17-2003 dated March 31, 2003) 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