VAT Ruling No. 021-98

August 5, 1998 VAT RULING NO. 021-98 Sec. 109 (W); 27 (D) (5)-33-97-54-96-021-98 Mercury Group of Companies, Inc. # 7 Mercury Ave., cor. E. Rodriguez, Jr., Bagumbayan, Quezon City Attention: Mr . Edgardo B . Valbuena Legal Director Gentlemen : This refers to your letter dated May 23, 1998 requesting confirmation of your opinion that the sale of your idle capital properties shall be exempt from the 10% value-added tax but subject to the 6% capital gains tax. It is represented that your company, MERCURY GROUP OF COMPANIES, INC. (MERCURY) is a domestic-corporation engaged, among others, in the property leasing business; that it owned three (3) parcels of vacant lots covered by TCT Nos. 106681, 17792 and 106680 located at Congressional Avenue, Quezon City with a total area of 1,863 square meters; that the said properties were idle and were not used in the ordinary course of trade or business of the company as verified by Revenue District Office No. 40 Cubao, Quezon City; that on March 20, 1998, the said properties were sold in favor of Q Plaza Holdings Corporation, hence, this request. In reply, please be informed that Sections 109 (w) and 27 (D) (5) of the Tax Code, as amended, provide as follows: "SEC. 109. Exempt Transactions . . . . The following shall be exempt from the value added tax: xxx xxx xxx (w) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. . . . xxx xxx xxx "SEC. 27. Rates of Income Tax on Domestic Corporation . . . . xxx xxx xxx (D) Rates of Tax on Certain Passive Incomes. xxx xxx xxx (5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. A final tax of six percent (6%) is hereby imposed on the gain presumed to have been-realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, of such lands and/or buildings. xxx xxx xxx" Inasmuch as the three (3) parcels of idle land of MERCURY are not primarily held for sale to customers or held for lease in the ordinary course of trade or business, then this Office is of the opinion that the sale of the said properties by MERCURY in favor of Q PLAZA HOLDINGS CORPORATION is not subject to the 10% value-added tax but only to the 6% capital gains tax. (BIR Ruling No. 54-96 dated May 14, 1996; BIR Ruling No. 33-97 dated April 1, 1997). LLpr This ruling is being issued to MERCURY based on 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)