BIR Ruling [UN-155-94]

May 24, 1994 BIR RULING [UN-155-94] The Regional Director Revenue Region No. 13 Central Visayas, Cebu City S i r : This refers to your letter dated October 5, 1992 stating that the Cebu Figueroa Estate Corporation sold on August 28, 1991 Lot No. 810-D-2 consisting of 1,608 square meters including a residential house constructed thereon, in favor of Ma. Aurora Figueroa-Balce for a consideration of P600,000.00; that the amounts of P53,203.50 and P9,200.00 were paid as creditable withholding tax and documentary stamp tax, respectively on the said sale; that the Revenue Officer, after an ocular inspection of the property fixed its valuation at P675.00 per square meter which is a compromise valuation between the zonal value of the property located at Governor M. Cuenco Avenue which is P900.00 per square meter and the zonal value of the property located at Yap Compound which is P450.00 per square meter because said property is located between Governor M. Cuenco and Yap Compound or particularly along Bauhinia Drive which has as yet no zonal value; that at P675.00 per square meter, the lot has a fair market value of P1,085,400.00 and the building which has a market value of P170,235 per Tax Declaration but increased by 200% has an adjusted market value of P340,470.00 or a total of P1,425,870.00 for the land and building; that the total amount of P1,425,870.00 was made the basis for computing the 5% creditable withholding tax and the difference between the fair market value of the property per investigation and the selling price (P1,425,870 P600,000.00 = P825,870.00) was subjected to 20% donor's tax prescribed in Section 93 of the Tax Code; that in its letter dated August 4, 1992, the taxpayer alleged that the applicable valuation of the property is P450.00 per square meter because said property is in the vicinity of Yap Compound which has a zonal valuation of P450.00 per square meter; and that the difference between the valuation of the property and the selling price which is P825,870.00 is not subject to donor's tax because there will be two (2) kinds of taxes imposed on the same transaction covering the same property. cdtech In connection therewith, you are requesting a ruling on the following: (1) Whether the Revenue Officer has the discretion to determine the fair market value of the property which is not specifically mentioned in the schedule of zonal values of real properties in Cebu City; and (2) Whether the difference of P825,870.00 between the valuation of the property and its selling price is subject to donor's tax. In reply thereto, please be informed that on all sales or exchanges of real property subject to the creditable withholding tax prescribed by Revenue Regulations No. 12-89 and 1-90, the basis of the withholding tax is the gross selling price or the total amount of consideration or its equivalent paid to the seller. Revenue Memorandum Circular No. 7-90 defines "gross selling price" as the consideration stated in the sales document or the fair market value/zonal value whichever is higher. Under Revenue Audit Memorandum Order No. 2-91 the determination of the tax base for sales, transfers, or other disposition of real property including improvements thereon for internal revenue tax purposes when the zonal value of land has not been established shall be as follows: "REVENUE AUDIT MEMORA NDU M ORDER NO. 2-91 xxx xxx xxx "C. DETERMINATION OF THE TAX BASE FOR LAND AND IMPROVEMENT 1. . . . "2. When the zonal value of land has NOT been established "a. Total Selling Price/ Consideration Per Deed of Sale (Land and Improvement) xxxxx ===== "b. Land Market Value Per Latest Tax Declaration Plus 100%/150% Thereof [Sec. c(3)] xxxxx Add: Improvement Construction Cost Per Building Permit and/or Occupancy Permit Plus 100% Thereof Per Year After Year of Construction; or Market Value Per Latest Tax Declaration Plus 100%/150% Thereof [Sec. c(4)] xxxxx ===== Total Market Value of Land and Improvement xxxxx ===== "c. TAX BASE OF LAND AND IMPROVEMENT [2(a) or 2(b), whichever is higher] xxxxx ===== Such being the case, the Revenue Officer has no authority to establish his own fair market value/zonal value in places where no fair market value/zonal value has as yet been established by the Bureau of Internal Revenue, (BIR Ruling No. 139-93 dated April 23, 1993) Moreover, the difference between the valuation of the property as established by the Revenue Officer and its selling price is not subject to donor's tax under Section 93 of the Tax Code, as amended, since the valuation of the property is not in accordance with Revenue Audit Memorandum Order No. 2-91. casia ALICIA P. CLEMENO Acting Assistant Commissioner Legal Services