VAT Ruling No. 055-97

1997 VAT RULING NO. 055-97 Sec. 100 (a) (1) (A) 168-92 55-97 Quirico T. Carag, Jr. & Associates Law Office Suite 507 Equitable Bank Bldg. 262 Juan Luna St. Binondo, Manila Attention: Atty . Quirico T . Carag, Jr . Corporate Counsel Gentlemen : This refers to your letter dated April 30, 1997 requesting for a ruling on the tax consequences of the proposed plan of your client to sell its real properties registered in its name. LibLex It is represented that your client, RIZAL INTEGRATED STEEL MILL CORPORATION, a duly organized domestic corporation with address at Cainta, Rizal, is exclusively engaged in the manufacture and production of galvanized iron and black iron sheets and has never been in the business of buying and/or selling of real properties; that it has acquired two (2) parcels of land, likewise located in Cainta, Rizal, which are covered by TCT Nos. 215970 and 218353 on March 4, 1968 and April 30, 1968, respectively; that the factory buildings thereon were constructed when the company started its operations way back in 1969 long before the imposition of VAT on sale of real properties; that it is now intending to sell these said real properties to at third party; and that you would like to request for confirmation of opinion as follows: "1. That your client's proposed sale of the subject parcels of land and the improvements constructed thereon is not subject to VAT; and "2. That the gain your client will derive from the said sale is subject to the ordinary income tax." In reply, please be informed as follows: 1. Pursuant to Section 100(a)(1)(A) of the Tax Code, as amended, the sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business is subject to VAT. Conversely, the sale of real properties which are NOT held primarily for sale to customers or for lease in the ordinary course of trade or business is NOT subject to VAT . The subject real properties in the instant case are not held primarily for sale to customers nor are they being offered for lease in the ordinary course of trade or business. Furthermore, the same are acquired and the improvements thereon were constructed about 28 years ago long before the introduction of the VAT system into the Tax Code. In view thereof, it is the opinion of this Office that the proposed sale by Rizal Integrated Steel Mill Corporation of its two (2) parcels of land, including the improvements thereon, should not be subject to VAT inasmuch as the said properties are not among the stock in trade of your client, its main line of business being the manufacturing and production of galvanized and black iron sheets and it is not in any way engaged in the buying and selling nor leasing of real properties. (VAT Ruling No. 27 dated September 23, 1996) 2. The gain which will be derived by your client in the disposition of the said two (2) parcels of land by sale, being an ordinary income, shall be subject to the 35% income tax pursuant to Sec. 24(a) of the Tax Code, as amended, and consequently, to the creditable withholding tax, as provided for under Revenue Regulations No. 12-94, which amended RR No. 12-89, as amended by RR No. 1-90, implementing Sec. 50(b) of the Tax Code, as amended. (BIR Ruling No. 168-92 dated May 27, 1992) Moreover, the aforesaid proposed disposition of your client's real properties shall be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code, as amended. 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, SIXTO S. ESQUIVIAS IV OIC, Asst. Commissioner Legal Service