BIR Ruling [UN-405-95]

November 16, 1995 BIR RULING [UN-405-95] Development Bank of the Philippines Office of the Legal Counsel Makati City Attention: Mr . Bonifacio M . Abad Senior Vice President Gentlemen : This refers to your letter dated August 10, 1995 stating that the Development Bank of the Philippines (DBP) Balanga Branch sold a parcel of land in favor of the Spouses Clodualdo & Enrieta Vitug; that a Deed of Absolute Sale was executed on May 3, 1995 for P405,000.00; that on June 5, 1995, Mr. Amancio O. Saga, Regional Director, Revenue Region No. 4, BIR, San Fernando, Pampanga, informed the Spouses Vitug that DBP is not exempted from paying the Creditable Withholding Tax because according to BIR Ruling No. 379-92, dated December 28, 1992, pertinent portion of which is hereunder quoted, to wit: "In reply, please be informed that under Section 31 of Republic Act No . 85, as amended (DBP Charter), DBP is subject to corporate income tax imposed by Section 24 of the Tax Code . Pursuant to Revenue Memorandum Circular No. 7-90 amplifying Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90, all sales, exchanges, or transfers of real properties (whether classified as ordinary or capital asset) by corporations consummated on or after January 1, 1990 are subject to the creditable withholding tax." (Emphasis supplied) cdll Based on the foregoing representations, you are now requesting, in effect, for a ruling as to whether or not DBP is exempt from paying the creditable withholding tax on income payments made in its favor, as a consequence of the sale of its acquired assets consisting of real properties. In reply, please be informed that under Section 4(a) of Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94, the withholding tax prescribed in these regulations shall not apply to income payments to the national government and its instrumentalities, including provincial, city, or municipal governments, as well as government owned or controlled corporations. Such being the case, since the DBP is a government-owned and controlled corporation, it is exempt from the payment of creditable expanded withholding tax imposed under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94 on income payments made in its favor which includes income payments received on account of the sale of its realty in favor of the Spouses Clodualdo & Enrieta Vitug. It is understood, however, that while DBP is exempt from the creditable expanded withholding tax under Revenue Regulations No. 12-94, DBP is still subject to corporate income tax on the gain realized from the sale of its acquired assets. (BIR Ruling No. 372-92 dated December 28, 1992) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)