BIR Ruling No. 334-2021

Quezon City

Section 39 of the Tax Code of Regulations No. 7-2003 BIR Ruling No. 489-2020; B[R Ruling No. 404-2020: BIR Ruling No. 014-2003 1997, as amended: Revenue VAT - 3 3 4 - 2 0 21 SEP 22U21

STA. ANA PARK SOUARE HOLDINGS, INC. 23 E. Rodriguez Avenue, Dona Josefa Quezon City 1113

Attention: DEWEY YU President

Gentiemen:

Makati City are classified as capital assets for taxation purposes. Park Square Holdings, Ine. ("Sta. Ana") located at A.P. Reyes, Street. Brgy. C'armona. This refers to your request for confirmation that the real properties owned by Sta. Ana

and with registered address at 23 E:. Rodriguez Avenue. Dona Josefa. Quezon City 1 113: that assign, transfer. mortgage. pledge, exchange, or otherwise dispose of real and personal property of every kind and description. including shares of stock, bonds. debentures. notes. evidences been organized and to exercise in respect thereof all the rights. powers and privileges of corporation nor shall it engage in stock hrokerage or dealership of securities: and that it is Securities and Exchange Commission (SEC) under Company Registration No. X200117071 its primary purpose is to invest in. purchase. or otherwise acquire and own. hold. use. sell. of indebtedness and other securities or obligations of any other corporation or partnership or association, domestic or foreign. for whatever lawful purpose or purposes the same may have ownership, except management of funds, portfolio and similar assets of the uanaged likewise registered with the Bureau of Internal Revenue (BIR) as a finunciul ho/ding compuny with registration fee. income tax. value-added tax (VA F), and withholding tax as its tax types. under OCN with PSIC Code 6694. Documents submitted disclosed that Sta. Ana is a holding conpuny duly registered with and Faxpayer Identitication Number {TIN}

located at A.P. Reyes. Street. Brgy. G'armona. Makati Gity, which are recorded in its Yudited and more particularly described as tollows: Financial Statements (AFS) as Tnvestment P'roperties " under the Non-( urrent Assets caption Sta. Ana owns two parcels of and with an aggregate area of 40.000 square imeters both

"Transfer Certiticate of Title (T(T) No. Tax Dectaration {(TD} No. {sm.} --5 b.25 Yrea

00790. a small portion thereof sith an area ol only 949 .quare meters ost of t totat ot 33.775 that ot the above-descrihed propertv cos ered by io'T No. square meters i& heing leased to Makati Development G orporation as .t tenporars dagmg aind WithID)

STA. .ANA PARK SQU.1RE HOLDINGS, INC.

or business by Sta. Ana. fabrication area since March 2017 and reported for income and VAT purposes and such corresponding taxes are paid and remitted' to the BIR: that per Certification issued by the Assessment Department of the City of Makati. the above-mentioned properties have no buildings erected thereon; and that per Certification issued by Barangay Carmona, Makati City the said properties have been idle for more than two (2) years and have not been used in trade

Code (Tax Code) of 1997, as amended, states: In reply, piease be informed that Section 39(A)(!) of the National Internal Revenue

"SEC. 39. Capital Gains und Losses. - (A) Definitions. - As used in this Title -

(l) (apital Assets. -- The term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business). trade or husiness of the taxpayer. " (Emphasis supplied) but does not include stock in trade of the taxpayer or other property of a kind which would properly he included in the inventory of the tuxpuyer if on hund at the close of the taxable y'eur or property held hy the taxpayer primarily for sale to customers in the ordinary course of his trude or business, or property used in the trade or husiness. of a character which is subject to the allowunce for depreciation provided in Subsection (F) of Section 34: or real "property used in

December 27, 2002, states that: In relation thereto, Section 2 of Revenue Regulations (RR) No. 7-2003' dated

following terms shall he defined as follows. "SEC. 2. DEFINITION OF TERMS. -- For purposes of these Regulations, the

t Capital assets shall refer to all real properties held hy a taxpayer, whether 39(A)(1) of the Code. Or not connected with his trade or business, and which are not included among the real properties considered as ordinary assets under Sec.

h.Ordinary ussets shull refer to ull real properties specifically exctuded from the definition of capital assets umder Sec. 39(A)(1) of the (ode. namely:

I. Stock in trade of a taxpayer or other reul property of a kind which would properly he included in the inventory of the tuxpuver if on hund ut the close of the tuxable year: or 2. Real property held hy the taxpuver primarily for sale to customers int the ordinary course of his trade or husiness: or

Real property used in trade or husiness (i.e., buildings undior depreciation provided for under Sec. 3+(F) of the ( ode: or improvements) of a churacter which is suhject to the allowance fon

4. Reul property used in trade or husiness of the tuxpuver. " (Emphasis and underscoring supplied)

Providing the Guidelines in Determining Whether a Particutar Real Property is a Capital Ysset or am Ordinar Asset Purstant to Section 39(AX 1) of the National Internal Revenue Code of 1997 for Purposes of Imposing the (apital G iains 27(A). 28(A1) and 28(BX), or the Minimum Corporate Income Lax (\( 11) onder Sections 27()amd 28( N 2) ot the [ax under Sections 2t(1)). 25AX(3). 25(B3) and 27(D(5}, or the Ordinary (ncome tax under Secttons 2t(\. 25 \) & (B). Saume (Code

P163F

STA. ANA PARK SQUARE HOLDINGS, INC

whether the property is capital asset or ordinary asset is the actual use of the said property. investment purposes and remains vacant and idle, it is deemed a capital asset. connected with his trade or business, or not held for lease or sale to customers, it will be classified as a capital asset. Also, if the property is merely held for capital appreciation and Thus, if the property is not actually used in trade or business of the taxpayer, whether or not Under the above quoted provisions., it is undisputed that the yardstick for determining

in BIR Ruling No. 014-2003 dated Octoher 28, 2003, as follows: In stressing the rationale of the above-mentioned rule, this Office elucidated the matter

"Inc.... The property is not actually used in the business of Wendell Holdings.. the transaction is suhject to capital gains tax of 6% under Section 27(D)(5) and) not to the creditable withholding tax. considered an ordinary asset is must be actually used in the business of the corporation. Accordingly, on the condition thut Wendell Holiings ('o., Inc. is) not hubitually engaged in the real estate husiness as represented, the property under consideration is capital usset. The property was neither held primarily for sale to customers nor actuully used in the husiness of Wendell Holdings Co. Inc. as it has remained idle and undeveloped. Therefore, the sule of the property under considerution is a sale of capital usset. not an ordinary asset. As such. "It is apparent under the foregoing provision that for a property to he

a company habitually engaged in the real estate business. Where the taxpayer is not engaged in the 'real estate business, a property not forming part of its inventory is considered a capita! asset. In the instant case, Sta. Ana which is a financial holding company is not considered as

Furthermore, Section 3 (e) of RR No. 7-2003 provides that:

a capital asset or ordinury asset. "SECTION 3. Guidelines in determining whether a particular reul property is

XXX XXX XXX

formerly forming part of the stock in trade of u tuxpaver engaged in the real estate husiness. or formerly heing used in the trade or husiness of u tuxpuver engaged or not engaged "in the real estate husiness. which were later on business shall not result in its conversion into a cupital asset even if the sume is subseyuently ahandoned or hecomes idle. abandoned and hecame idle, shall continue to he treated as ordinary ussets. Real property initially acyuired hy a taxpuver engaged in the real estate e. Treatment of abandoned and idle real properties. - Real properties

than two (2) years prior to the consummation of the tuxahle transuctions cupital assets upon showing of proof that the same huve not heen used for more involving said properties. " (Emphasis and underscoring supplied) used in husiness hy a taxpaver engaged in business other than real estate business as defined in Section 2 (g) hereof ure uutomatically converted into Provided however, that properties clussified us ordinary ussets for heing

assets. he automatically converted into capital assets. not engaged' in the reai estate business or referring to those persons other than real'estate dealers. real estate developers and/or real estate lessors shatl, upon showing of proof that the same have not been used in business for more than two (2) years prior to the cousummation ot the taxable transactions involving the said real properties. and ihough classified as ordinary In applying the above provision of RR No. 7-2003. real properties owned by taxpayers

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STA. ANA PARK SQUARE HOLDINGS. INC FH

this Office is of the oninion as it herchv holds 'that the 6 225 square meter parcel of land covered taxpayer not engaged in a real estate business, being not a real estate dealer, developer or lessor. by TCT No. covered by I'CT No. However, with regard to the 930 square meter nortion of the 33.775 square meters covered by ordinary asset for taxation purposes. than two (2) years and have not been used in trade or business, are classified as capital assets. Corporation as a temporary staging and fabrication area. such portion shall be considered as ICT No. In view of all the foregoing, since Sta. Ana is a finuncial holding compuny and a and TD No. with TD No. with TD being leased to Makati Development and the 32,845 square meter portion which have been idle for more

if upon investigation, it is 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. However.

Very truly yours.

K Commissioner of Internal Revenue CAESAR R. DULAY

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