PLDT Taxes on Imported Telecommunications Equipment

February 18, 2000 BIR RULING [DA-107-00] Mr . Mario C . Aquino C/o UPSICOR, Inc. 1122 Gen. Luna Street Ermita, Manila S i r : This refers to your letter dated June 29, 1999 stating that UPSICOR, Inc. purchased a commercial condominium unit located at Unit 1005, Medical Plaza Makati, Legaspi Village, Makati City from Meridien Land Holdings (Vendor-Developer) in the sum of Three Million Six Hundred Five Thousand Three Hundred Eleven Pesos and Four Centavos (P3,605,311.04); that UPSICOR, Inc. is a domestic corporation consisting of eight (8) medical practitioners as incorporators who bought the aforesaid unit on installment basis; that however, a few months after the said purchase, four (4) of the incorporators of UPSICOR, Inc. went abroad to practice their profession and decided to hold their permanent residence thereat; that on January 12, 1999, the Board of Directors of UPSICOR, Inc. passed a Resolution approving the sale in favor of the four (4) remaining incorporators by UPSICOR, Inc. of its rights and interest over the said condominium unit, that subsequently, a Deed of Absolute Assignment was made and executed by UPSICOR, Inc. and Drs. Raul D. Jara, Rody G. Sy, Nelson S. Abelardo and Dante D. Morales whereby the former assigned and transferred all its rights over the aforesaid condominium unit in favor of the latter; that the said condominium unit is now fully paid by the Vendees, and both vendor and vendees would like to start working on the registration of sale or its transfer of ownership to the vendees; and that the BIR still stand to receive the same amount of taxes from the payment of capital gains tax and documentary stamp tax by the developer. Based on the foregoing representations and documents submitted, you are now requesting for a ruling as to the tax consequences should the Contract To Sell by and between the above-mentioned parties be revoked and replaced by a Deed of Absolute Sale to be executed by the Vendor-Developer in favor of the four (4) remaining individual incorporators as co-owners. In reply, please be informed that since the subject condominium unit is now fully paid, a Deed of Absolute Sale on said sale transaction must, as a consequence, be executed by the vendor, Meridien Land Holdings, Inc., in favor of the vendees, incorporators of UPSICOR, so as title to the said property may be effectively transferred to the vendees thereof. However, before title to the said property could be transferred, the corresponding creditable withholding tax and documentary stamp tax and value-added tax on the sale of said condominium unit, the vendor-developer being engaged in the realty business, must first be paid by the vendor, Meridien Land Holdings, Inc.. In case a Deed of Absolute Sale has been executed by the parties, which includes, aside from the names of the four (4) remaining vendees-incorporators, the names of all eight (8) incorporators including the four (4) incorporators who went abroad to practice their profession as vendees, the same may be revoked to reflect the real parties to the said sale transaction i.e., by excluding the names of the said four (4) incorporators who went abroad as vendees to said sale transaction, without the vendor incurring any additional tax consequence that stated above. On the other hand, in case a Deed of Absolute Sale has not yet been executed and the one to be executed would indicate as vendees thereof, the names of the four (4) incorporators who went abroad, no other tax consequences would likewise ensue other than that stated above. However, the assignment of rights by UPSICOR, Inc. in favor of the four (4) remaining incorporators over the said condominium unit while title to the same remains which Meridien Land Holdings, Inc., such sale of right over land / buildings, the vendor-developer is not subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997 and to the creditable withholding tax imposed under Section 57(B) nor to the documentary stamp tax prescribed under Section 196 of the same Code. However, the Deed of Assignment of Rights is subject to the P15.00 documentary stamp tax on the notarial acknowledgment on said Deed. Moreover, payment made by UPSICOR to Meridien Land Holdings pursuant to the Contract To Sell they executed on December 27, 1995 or prior to the assignment of its right over the said condominium units by UPSICOR in favor of its four (4) remaining incorporators shall be subject to the creditable withholding tax imposed under Section 57(B) as implemented by Revenue Regulations No. 12-94. In the case of deferred payment of sale of real property not on installment plan, the income derived from which is wholly taxable to the seller on the year of sale (initial or down payments in the year of sale exceeds 25% of the selling price or contract price), the buyer shall withhold the CWT based on the initial or down payment as ruled in BIR Ruling No. 028-94 (BIR Ruling No. 182-99 dated November 24, 1999) On the other hand, those payments made after February 24, 1996, the basis of the CWT as ruled under BIR Ruling No. 019-96 shall be the amount of the selling price or fair market value whichever is higher rather than on the initial or down payment as ruled in BIR Ruling No. 028-94. The latest revenue issuance in respect of sale of real property payable on a periodic amortization over the years as embraced by Section 2.57.2(J) of Revenue Regulations No. 2-98, as follows: "Where the consideration or part thereof is payable on installment, no withholding of tax is required to be made on the periodic installment payments where the buyer is an individual not engaged in trade or business. In such case, the applicable rate of tax based on the entire consideration shall be withheld on the last installment or installments to be paid to the seller. "However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax shall be deducted and withheld by the buyer on every installment ." 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group