VAT Ruling No. 046-98

1998 VAT RULING NO. 046-98 109 (w); 27 (D) (5)-33-97-046-98 Eastern Canumay Industrial Development Corp. 235-d Mac Arthur Highway Karuhatan, Valenzuela Attention: Mr . Alex Uson President Gentlemen : This refers to your letter dated September 28, 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 EASTERN CANUMAY INDUSTRIAL DEVELOPMENT CORP. (CANUMAY) is a domestic corporation engaged in production of marble and other marble products; that it owned parcels of vacant properties covered by various Transfer Certificates of Title located at Bo. Lawang Bato, Valenzuela, Metro Manila, with a total area of 29,942.76 square meters; that the said properties were not used in the ordinary course of trade or business of the company and are now subject of sales negotiation; that on August 21, 1998, one parcel of lot with area of 5,994 square meters covered by TCT No. V-52960 was sold in favor of ULTIMATE INNOVATIONS, INC., hence, this request. In reply please be informed that Sections 109(w) and 27(D)(5) of the Tax Code as amended, provided 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 said parcel of land of CANUMAY is 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 property by CANUMAY in favor of ULTIMATE INNOVATIONS, INC., 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) This ruling is being issued to CANUMAY 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group