San Agustin Civic Association, Inc.

August 18, 2009 BIR RULING [SH-(075) 507-09] San Agustin Civic Association, Inc. Barangay Manambulan, Tugbok Davao City Attention: Mr. Erasmo J. Adaza President Gentlemen : This refers to your undated letter stating that the San Agustin Civic Association (San Agustin) is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. D00626 dated July 8, 1999; that it is organized primarily to maintain a close relation and cooperation of all members; to uplift and promote better living conditions, education, health and general welfare of all the members in particular and the public in general; that San Agustin is accredited as a legitimate urban poor organization by the Presidential Commission for the Urban Poor under Certificate of Accreditation No. 2000-310-C dated March 15, 2000; that Erasmo J. Adaza and Nicomedes C. Dublin are the registered owners of agricultural land covered by OCT Nos. P15638, P-15604 and P11460 with an aggregate area of 99,463 square meters; the said properties upon application of Erasmo J. Adaza and Nicomedes C. Dublin were converted from agricultural to residential (resettlement-urban poor housing) use pursuant to an Order of the Department of Agrarian Reform dated February 4, 2004 in a Petition entitled "In Re: Application for Land Use Conversion from Agricultural to Residential (Resettlement-Urban Poor Housing) Use Pursuant to DAR Administrative Order No. 1, series of 2002"; that the said lots were originally classified as agricultural land and that by virtue of Sangguniang Panlungsod Resolution No. 0686-05 with its corresponding Ordinance No. 090-05, both series of 2005, the same parcels of land were declared to be within the Socialized Housing Zone (SHZ); that San Agustin desires to purchase the said real properties located in Manambulan, Tugbok, Davao City, for its 430 members, respectively from Erasmo J. Adaza and Nicomedes C. Dublin; and that a Development Permit was issued by the City Housing and Land Use Regulatory Unit of the Office of the City Planning and Development Coordinator. Based on the foregoing representations, you now request for exemption from the payment of capital gains tax and documentary stamp tax on the sale of the above-mentioned properties by Erasmo J. Adaza and Nicomedes C. Dublin in favour of the San Agustin Civic Association, Inc. pursuant to Republic Act (RA) No. 7279. In reply thereto, please be informed that pertinent portion of Section 20 of RA No. 7279, reads: "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx "(d) Exemption from the payment of the following: (1) project-related income taxes; (2) capital gains tax; STIEHc (3) value-added tax for the project contractor concerned;" xxx xxx xxx Pursuant to the aforementioned provision, the owners of the raw land are exempt from the payment of capital gains tax on the conveyance of the above-described properties for use in the socialized housing project. Upon application for exemption, a lien on the titles of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are to be applied or are being applied to socialized housing project pursuant to R.A. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, as amended by Revenue Regulations No. 17-2001, within six (6) months after the issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the property and shall start the development of the socialized housing project within one (1) year after the approval of the Development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed and paid by the buyer/developer. On the other hand, once the developer is registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A No. 7279 and as developer of the property used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lots or lots only) shall be exempt from project-related income taxes, and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, implementing Section 57 (B) of the Tax Code of 1997. In this connection, it should be mentioned that any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption as well as should there be non-compliance with any of the sine-qua-non terms and conditions as afore-stated, for tax exemption purposes. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realties or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. TICAcD It is however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the selling price per sale transaction of the lots on this case does not really exceed P400,000.00, as the case may be, for each qualified beneficiary. Moreover, as developer, you are exempt from the payment of value-added tax (VAT) on your gross receipts from the said project. However, your purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. Furthermore, the transfer by San Agustin Civic Association, Inc. of the properties in favor of the individual member-beneficiaries is not subject to the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as well as the creditable withholding tax imposed under Revenue Regulations (RR) No. 2-98, implementing Section 57 of the Tax Code, considering that the transfer made is without any consideration since it is only a formality to finally effect the transfer of your properties to your member-beneficiaries who bought the same and thus, considered the actual owners of said property. (BIR Ruling No. DA-416-98 dated September 14, 1998) In the same vein, the transfer of the properties is not subject to the donor's tax imposed under Section 98 of the 1997 Tax Code. Apparently, there is no donative intent on the part of the Association to donate the said property to its members-beneficiaries, considering that no donation may exist to one who is the actual and rightful owner of the alleged property to be donated. Finally, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realties not in connection with a sale to trustees or other persons without consideration are not taxable". Accordingly, the deeds of assignment to be executed by the Association to effect the aforesaid transfer in favor of its individual members are not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgments to said deeds are subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. SIDTCa Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service