Edgewater Realty Development, Inc.

November 23, 2009 BIR RULING [SH-(114) 727-09] Sec. 32, RA 7279; RMC 42-01 Edgewater Realty Development, Inc. No. 26 Van Buren, North Greenhills San Juan City Attention: Mr. Francisco J. Joaquin, Jr. President Gentlemen : This refers to your letters dated August 4, 2009 and October 7, 2009 requesting exemption from the payment of capital gains tax on the sale by Edgewater Realty Development, Inc. ("ERDI") of its real property to the actual occupants thereof who are informal settlers pursuant to Revenue Memorandum Circular (RMC) No. 42-01, implementing R.A. No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclose that parts and parcels of ERDI's property located in Tumana, Marikina City were occupied by informal settlers after the EDSA Revolution in 1986; that as a result, EDRI * filed ejectment cases against several homeowners/neighborhood associations occupying its above property; that as it would be legally and physically impossible for EDRI * to pursue its real estate business operations/transactions within the vicinity due to the existence of ghettos and slums, EDRI * acceded to the requests of the various associations of illegal settlers to have its property placed under the Community Mortgage Program (CMP);that there are other dwellers that opted to buy the property they are occupying not through financing but by directly buying the same; that the Housing and Urban development Coordinating Council (HUDCC) determined the above property as blighted and slum urban area and considers the same as an on-site development; and that investigation and ocular inspection conducted by the revenue officers of Revenue District Office (RDO) No. 45, Marikina City, disclosed that the inhabitants of the subject property are indeed informal settlers. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion of which reads: "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx" On the other hand, paragraph II (D) of RMC 42-01 provides as follows: ASEIDH "Properties identified as APDs, and slum improvement and resettlement program sites, when sold by private owners, shall likewise be exempt from the capital gains tax or income tax, and consequently from the creditable (expanded) withholding tax, whether sold by an individual, estate or trust, or by a corporation. However, the documentary stamp tax shall be paid on every sale of the said property based on the actual consideration of sale stated in the document or the value stated in the latest real property Tax Declaration issued by the Provincial or City Assessor, whichever is higher, but in no case shall the said documentary stamp tax be passed on to the occupants thereof as the latter are expressly exempted from the payment thereof pursuant to Section 25, Article VI of R.A. No. 7279. (Section 173, Tax Code of 1997)." Inasmuch as the above subject property is determined by the HUDCC as a slum area and that the actual occupants thereof are informal settlers as reported by the revenue officers of RDO No. 45, the sale by ERDI to said informal settlers of the properties they are presently occupying either through the CMP or direct sale, therefore, is not subject to capital gains tax or income tax imposed under Section 27 (D) (5) and Section 27 (A) of the Tax Code of 1997, as amended, respectively, and consequently, from the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended. Likewise, the said sale is not subject to value-added tax (VAT) pursuant to Section 109 (P) of the same Tax Code. Upon issuance of this letter of exemption, and upon registration of the documents of sale, a lien on each Certificate of Title to be issued in the name of the individual buyers or members of the existing homeowners associations shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the sales of said properties are in accordance with the provisions of R.A. No. 7279. However, it is observed that the documentary stamp tax is not one of the taxes covered by the tax incentives/exemption clause under Sections 20 and 32 of R.A. 7279. Such being the case, ERDI shall be liable to pay the documentary stamp taxes on the documents conveying the portions of its real property to the individual buyers or members of the associations under Sec. 196 of the Tax Code of 1997. The documentary stamp tax shall be based on the consideration contracted to be paid or the fair market value of the realty determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher. (BIR Ruling S-32-062-2000 dated May 10, 2000) DEcTCa 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service