BIR Ruling No. 29-2020

REPUBLICOF THE PHILIPPINES

DEPARTMENT OFFINANCE

BUREAU OF INTERNAL REVENUE

Quezon City

Sec. 24,27.106 & 196 of the NIRC, as BIR Ruling No. 388-2011 amended; Revenue Regulation 2-98, 6-01, 7- 03, 16-05 & 4-07; Revenue Memorandum Order 41-91

0T-0292020 JAN 2_4 2020

ONGKIKO MANHIT CUSTODIO & ACORDA LAW OFFICES 15th Floor, Citibank Tower 8741 Paseo de Roxas, Makati City

Attention: DEMETRIO C.CUSTODIO, JR.

Gentlemen:

Bangko Sentral ng Pilipinas (BSP), clarification of the applicability of BIR Ruling No. 388-2011 relevant to tax implications on the expropriation sale between two government instrumentalities. This refers to your letter dated January 16, 2012, requesting in behalf of

discusses the tax implications of an expropriation sale of a property from a seller. whether individual or corporation, to the Light Rail Transit Authority (LRTA); that it is your opinion that the same, however, is silent on the tax implications of an expropriation sale from the BSP to LRTA. hence, this request. It is represented that BIR Ruling No. 388-2011 dated October 20, 2011.

the complaint is a property located in Manila, which is covered by Transfer Certificate to BSP. The Trial Court rendered its decision determining the just compensation complaint for eminent domain for its LRT2 Project'. One of the properties subject of which has become final and executory. of Title No. It is further represented that on September 7. 2001. the LRTA filed a and Tax Declaration No. , a property belonging

applicable taxes, depending on whether the subject properties are classified as capital involuntary transfers of real properties, including expropriation sale, are subject to assets or ordinary assets. In reply, please be informed that this Office on several occasions ruled that

Under Section 27(D)(5) of the 1997 Tax Code, as amended, it is provided that in the case of sale, exchange, or other disposition of lands and/or buildings which are

not actually used in business and are treated as capital assets by domestic corporations, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code whichever is higher, is imposed upon capital gains presumed to have been realized therefrom. It must be noted that the capital gains tax mentioned under the

The case was entitled Light Rail Transit Authority v. Banco Filipino Savings and Mortgage

Bank Inc. and Bangko Sentral ng Pilipinas,Civil Case No.01-101871 before the Regional

2 P21,426,425.00, partial payment of P14,581,220.00 was already. made by LRTA,as Trial Court of Manila, Branch 42.

consequence of which P6,845,205.00 remains to be paid Yhe

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aforementioned provision is an income tax, the burden of which rests upon the seller which, in this case, is the BSP.

imposed on its capital gains presumed to have been realized from the sale of the said Sec. 32(B(7)(b) of the Tax Code of 1997 which provides that only the income derived by the government agency from the exercise of its essential governmental function shall be excluded from its gross income. parcel of land in spite of its being a government agency. This is in accordance with It is noteworthy to mention that BSP is subject to the capital gains tax of 6%

considered as the actual consideration or consideration contracted to be paid in corporate owner of the affected property as "just compensation", the same being accordance with RMO No. 41-91. capital gains presumed to have been realized by the said corporation from the expropriation or sale via negotiation of its capital asset, shall be subject to the 6% final withholding tax imposed under Section 2.57.1 (G) of RR No. 2-98, as amended. The tax therein imposed shall be based on the amount that will be received by the Thus, the property owned by BSP is considered as its capital asset, then the

the Documentary Stamp Tax of the National Internal Revenue Code of 1997, as subject to documentary stamp tax as follows: Amended, and for Other Purposes", provides what documents and papers are not Moreover, Section 9 of RA No. 9243, "An Act Rationalizing the Provisions on

Code of 1997, as amended is hereby further amended to read as follows: SECTION 9. Section 199 of the National Internal Revenue

SEC.199. Documents and Papers Not Subject to Stamp

the following instruments, documents and papers shall be exempt from the documentary stamp tax: Tax. - -- The provisions of Section 173 to the contrary notwithstanding.

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the conduct of business of the Banko Sentral ng Pilipinas. () All contracts, deeds, documents and transactions related to

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party to the taxable document enjoys exemption from the tax therein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. It is clear from the provision of R.A. 9243 as implemented by Revenue Regulations No. contracts, deeds, documents and transactions entered into by the BSP which are 13-04, the provisions of Section 173 to the contrary notwithstanding, that all Section 173 of the Tax Code of 1997, as amended, provides that whenever one

related to the conduct of its business are exempt from the payment of DST. Hence. LRTA is the one liable for the payment of DST.

amending Sec.4.109-1(B)(1)(p) of RR No.16-2005, implementing Republic Act (RA) No.9337,provides Furthermore, Sec.14 (B) (p) (1) of Revenue Regulations (RR) No. 4-2007,

VAT, namely: "(p) The following sales of real properties are exempt from

RR No. 7-2003 provides for the guidelines in the classification of assets, whether capital or ordinary. Q

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customers or held for lease in the ordinary course of trade or business. (l) Sale of real properties not primarily held for sale to

be subject to VAT being a transaction incidental to the taxpaver's main the same is used in the trade or business of the seller, the sale thereof shall customers or held for lease in the ordinary course of trade or business but business. However, even if the real property is not primarily held for sale to

not used in the taxpayer's trade or business, is not subject to the 12% VAT. intention of being sold or leased. Thus, sale of property not primarily held for sale to customers or held for lease in the ordinary course of trade or business, and the same is order of time, or development, or intention" (Black's Law Dictionary, Sixth Edition). Thus, to be "held primarily for sale or lease", the property must be held with the chief The term "primary" is defined as "first, principal, chief, leading or first in

Accordingly, the expropriated sale of the property by the BSP to LRTA is:

1.- subject to the capital gains tax of 6% pursuant to Section 27 (D) (5) of the Tax Code of 1997 based on the just compensation as actual consideration pursuant to RMO No. 41-91;

2. subject to DST to be paid by LRTA at the rate of P15.00 for each of the just compensation as actual consideration pursuant to Section P1.000.00 or fractional part thereof in excess of P1,000.00, or 1.5% 196, supra; and

3.exempt from 12% VAT, the property not being primarily held and offered for sale or lease to customers in the ordinary course of BSP's trade or business and not used in the trade or business.

However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

ieem

Commissioner of Internal Revenue CAESAR R. DULAY

K-1-JRC/JAC 032336