VAT Ruling No. 027-96

September 23, 1996 VAT RULING NO. 027-96 Sec. 100 (a) (1) (A)-000-027 Honorable Vicente B. Lopez, CESO II Undersecretary Department of Public Works and Highways Bonifacio Drive, Port Area Manila S i r : This refers to your letter dated February 28, 1996 in effect, requesting for a confirmation of your opinion that in case of sales of private property in favor of the government for road right-of-way purposes, the private property owners shall not be subject to Value-Added Tax (VAT). It is represented that one of the identified causes of delay in project implementation at present is the policy/requirement regarding the Expanded Value-Added Tax (E-VAT) which was being implemented by that Office; that negotiated sales for private property needed for right-of-way of various infrastructure projects are based on the valuation made by the Metro Manila Appraisal Committee created under Executive Order No. 329, as amended; that some of the owners except for the company/corporate owners are willing or have agreed to the price fixed by the Committee; that one of the owners, the Sto. Domingo Realty Corporation is requesting that the government shoulders the amount corresponding to E-VAT; that if said tax will be shouldered by the owners, it would be too burdensome and the consideration due to the owner will be substantially reduced; and that noticeably, this requirement of the BIR delays the acquisition of the needed right-of-way. In reply, please be informed that under Section 100 (a) (1) (A) of the Tax Code, as amended, real properties held primarily for sale to customers are subject to VAT. Conversely, the seller who is not engaged in a VAT taxable business; or if engaged in a VAT taxable business, but the stock in trade is not real property, cannot be subject to VAT. In other words, sale of real property under a negotiated sale for road right-of-way is not subject to VAT if the seller is not selling property in the regular conduct of his business. However, even if the seller is engaged in the sale of real property in the course of business, if the transaction is forced on the seller by virtue of the exercise of the government's power of eminent domain, i.e. negotiated purchase for road right-of-way, it cannot be said that the sale is conducted in the course of the taxpayer's trade or business; hence, pursuant to Section 99 of the Tax Code, as amended, it is not subject to VAT. cdti Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue