ITAD BIR Ruling No. 233-11

October 18, 2011 ITAD BIR RULING NO. 233-11 Sections 27, 73 and 106, NIRC of 1997, as amended Department of Foreign Affairs Office of Protocol 2330 Roxas Boulevard Pasay City Attention: Mr. Edgar Tomas Auxilian Acting Executive Director Gentlemen : This refers to Note Verbale No. 131-3382 of the Embassy of the Islamic Republic of Iran dated June 16, 2011, indorsed by your Office on July 6, 2011, requesting confirmation on the tax treatment of the Embassy's acquisition of a parcel of land to operate as office for its Cultural Section from Ferigate Philippines Corporation ("Ferigate"). Documents submitted show that on November 17, 2010, a Deed of Absolute Sale was executed by Ferigate, as the Vendor, in favor of the Embassy, as the Vendee, over a parcel of land together with the improvements thereon, located at 448 EDSA Guadalupe, Makati City, for and in consideration of the sum of Sixty Million Pesos (Php60,000,000.00); and that pursuant to the said Deed of Absolute Sale, the vendor shall shoulder the capital gains tax and notarial fees while the documentary stamp tax, registration fees and transfer tax shall be for the account of the vendee, subject to tax exemption whenever applicable. In reply, please be informed as follows: On capital gains tax ("CGT") Under Section 27 (D) (5) of the National Internal Revenue Code ("NIRC") of 1997, as amended, the herein transaction may be subject to CGT if the property subject of sale is a capital asset or to creditable withholding tax ("CWT") of 6% if an ordinary asset. However, the CGT/CWT shall be the liability of the vendor, Ferigate in the instant case, and not the vendee. On documentary stamp tax ("DST") Under Sections 196 and 173 of the NIRC of 1997, as amended, the transaction shall be subject to DST. It bears to stress, however, that whenever one party to the taxable document enjoys exemption from the DST imposed on the conveyance of land, the non-privileged party shall be the one directly liable to tax. Accordingly, in the instant case, the vendor of the lot, Ferigate, shall be the party directly liable for the payment of the DST thereon. On value-added tax ("VAT") The transaction may be subject to VAT if the property sold is held primarily for sale to customers in the ordinary course of trade or business by a VAT-registered vendor. VAT, being in the nature of an indirect tax, may be shifted or passed on to the vendee, transferee or lessee of the goods, properties or services. However, the vendee in this instance, the Islamic Republic of Iran thru its Embassy in the Philippines, is exempt from VAT and cannot be passed on with VAT. Accordingly, it is the seller, Ferigate, who shall be liable for VAT, pursuant to Section 106 of the NIRC of 1997. AEcTCD On real property tax This Bureau declines to rule on this issue since it is beyond its jurisdiction to pass upon matters relating to taxes outside the scope of the NIRC of 1997, as amended. Therefore, in view of all the foregoing, this Office is of the opinion and so holds that the CGT/CWT, DST and VAT on the subject purchase of a parcel of land by the Embassy of the Islamic Republic of Iran for its Cultural Section, shall be paid directly by Ferigate, the non-exempt seller herein, pursuant to Sections 27, 106 and 173 of the NIRC of 1997, as amended. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue