BIR Ruling No. 304-2022

REPUBLICOF THE PHILIPPINES

BUREAU OF INTERNALREVENUE DEPARTMENT OF FINANCE

Quezon City

BIR Ruling No,083-99 Seciions 24 (D)(1), 105, 188 and 196 of amended;RR No.7-2003;RR No.16- 2005, as amended the Tax Code;Sections 2.57.1 (A)(6 and 2.57.2 F of RR No.02-98,as OT- JUN 2 3 2022 304 2022

Pasay City SM DEVELOPMENT CORPORATION 15th Floor,TwoE-Com Center Harbor Drive,Mall of Asia Complex

Attention: ATTY.DAVID P.TAN, JR. Authorized Representative

Gentlemen:

SM Develonment Corporation (SMDC or theAssignor of its rights, inests and subject to capiia gains taxCGT or expanded withholding taxEWT,value-added tax obligations under a Memorandum of Agreement (MOA to its designated Assignee is not VAT and documentary stamp taxDST This refers to your request for confirmation of your opinion that the assignment by

with two (2 different sellers over certain parcels of land (collectively, the Properties) situated in It is represented that sometime in June 2021,SMDC executed two2)separate MOAs Y as follows:

Execution Date of Original Sellers Lot No. Area (m) ofTitleTCTNo Transfer Certificate Purchase Price (in Php) June 21. June 4. 2021 2021 and Juliana Castro Ramos Heirs of Ponciano Ranios Nancy Mortiz 1O 1

CGT,25% of which is payable upon signing ot the MOA and the remaining balance of seventy-five percent 75% to be paid within seven (7) months from signing of the MOA and submission of certain documents by the Sellers in two (2) equal installments. The purchase price of the Properties is per square meter, inclusive of

have not been executed and released,resnectively. 3 of the MOA, the Deeds of Absolute Sale and the remaining balance of the purchase price price to the Original Sellers,while the CGT has been fully paid.As the above-named Original Sellers have yet to submit or comply with the conditions and requirements stated in item three It is further represented that SMDC has paid the equivalent of 62.5% of the selling

and obligations undeach MOA in favor of Julie Ann B.Lachica the Assignee,in details as follc.. exchange fo.a total amount of Php Pending the compliance of the Original Sellers. SMDC assigned its rights, interests which was paid by the Assignee,with

NowTCT No Her the names of Luciat Ramos, et. al Q

SM DEVELOPMENT CORPORATION OT-304-2022 JUN 2 3 2022

Heirs of Ponciano Ramos (Luciano Ramos, et. al) Nancy Mortiz Sellers Lot No. 10 14 ( Area Purchase Price (in Php) Amount Received by SMDCPhp)

Total

as evidenced in the conforme' section of the Deeds of Assignment. Sellers have given their respective consent either individually or through an attorney-in-fact The assignment is in accordance with item 162 of the MOA. On this note, the Original

and obligations of SMDC under the MOAs to the Assignee is not subject to CGT/EWT,VAT and DST. In this regard, you now request confirmation that the assignment of rights, interests

We reply as follows: L

On CGT/EWT

amended, provides: Section 24 (D)(1) of the National Internal Revenue Code of 1997 (Tax Code), as

"SEC. 24. Income Tax Rates. *Y XXX XX.X

(D) Capital Cains from Sale of Real Property.-

Section 24 (A) or under this Subsection, at the option of the taxpayer;" (Underscoring and emphasis ours) forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the governnent or any of its political subdivisions or agencies or to government-owned or controlled corporations sinall be determined either under from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6() of this Code, whichever is higher, is hereby imposed upon capite gains presumed to have been realized (1) In C.neral. - The provisions of Section 39(B) notwithstanding, a final tax of

amended, implemented the afore-quoted provision, to wit In connection there vith, Section 2.57.1 of Revenue Regulations (RR) No. 02-98, as

following forms of income shall be subject to final withholding tax at the rates herein specified: "Sec. 2.57.1. Income Payments Subject to Final Withholding Tax - The

(A) Income Payments to a Citizen or to a Resident Alien Individual:

xxxxxx XX.

capital assets, including pacto de retro sales anc other forms of conditional sales or other disposition of real prope:ty located in the Philippines, classified as (6) Ou capital gains presumed to have been realized from the sale, exchange

"16. ASSIGNMrThe BUYER has the option to assign its rightsinterest and obligations under this Agreement to its assignee provided prior written consent of the SELLERS is obtainc by the BUYER.

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prescribe the real property values),whichever is higher-Six percent (6%) bard on the gross selling price or fair market value as determined in accord nce with Sec. 6(E of the Code (i.e. authority of the Commissioner to

procedures stated under Section 2.57.2(J Inow Section 2.57.2(F)] hereof on the sale of real property classified as ordinary asset shall apply with the on the latter shall be creditable, " (Underscoring and emphasis ours) exception that the withholding tax on the former shall be final whereas that In case of sale on insiullment of rea. properiy classified as capital asset, the

as amended3, it provides that in case the sale of real property classified as capital asset is made in installment, such as in the case of SMDC, the rule and procedure provided in Section 2.57.2(J [now Section 2.57.2(F)] of the said RR shall govern, to wit: Under the above-quoted second paragraph of Section 2.57.1 (A6 of RR No.02-98

the Philippines: be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income pirments to persons residing in Rates Prescribed Thereon - Except as herein otherwise provided, there shall "Sec. 2.57.2.Income Payment Subject to Creditable Withholding Tax and

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capuui asset, shall be imposed upon the withholding agent/buyer, in accore..e with the following schedule: price/total amount of consideruti n or the fair market value determined in accordance with Section 6 (E) of the Code, whichever is higher paid to the sellerlowner yor the sale, transfer or exchange of real property, other th:n (F) Gross selling price or total amount of consideration or its equivalent paid to the sellerlowner for the sale,exchange or transfer of real property classified as ordinary asset.+ - A creditat e withholding tax based on the gross selling

XXX X3 XXX

or otherwise, these rules shall apply: However, if the buyer is engaged in trade or bik iness, whether a corporation

XXX XXX XXX

first installment. 25% of the selling price), the buver shall withhold the tax based on the gross selling price or fair market value of the property, whichever is higher, on the (ii) If, on the other hand,-the sale is on a cash basis' or is adeferred-payment sale not on the installment plan' (that is, payments in the year of sale exceed

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property and, therefore, subject to the creditable expanded withholding tax classified as ordinary asset,but before the execution of the Deed of Sale, the consideration, the assignment shall be considered a separate sale of real buyer decides to assign his right over the property to another person for a If upon completion of the payment of the purchase price of real property

As AmendecR No.08-98,RR No.06-01 and RR No.17-03. Implementing Republic Act No. 8424,An Act A rending the Nationil Internal Revenue Code,as Amended Relative to the Withholding on Income Subject to the Expanged Withholding Tx and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes, April 17 1998. G

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CT-304-2022 SM DEVELOPMENT CORPORATION JUN 2 3 2022

assig.ment, whichever is higher, and to the DST' imposed under Sec. 196 of the same Code using the same basis. Deea of Assignment or the fair market value of such property at the time of (EWT) or final withholding of capital gains tax.as the case may be, which shall be withhelu by the assignee of such property based on the consideratio:per

actually paid by the said original buyer. " (Underscoring and emphasis ours) purchased on installment covered by Contraci to Sell which was sold by the original buver before it was fully paid) shall be taxable on the part of the original buver (now seller) based on the realized gain thereon which is measured by the difference between the agreed consideration and the amount It is to be clarified, however, that sale of interest in real property (real property

by the Original Sellers to SMDCFirst Transactionand 2 assignment of rights, interest purchase price relating tc the First Transaction Second Transaction and obligations over the Properties by SMDC to the Assignee pending full payment of the In the instant case, there were two 2 sets of transactions:(1 sale of the Properties

SMDC of real properties that are classified as capital assets. Thus, the said sale is subject to CGT pursuant to Section 24D1 of the Tax Code,aamendedAs represented,the CGT pertaining to the full purchase price of the Properties was already paid and remitted to the Bureau. It is indubitable that thc First Transaction involves a sale by the Original Sellers to

Section 2.57.2(F)] of RR No.02-98, as amended, shall apply with the exception that the withholding tax on the former shall be final whereas that on the latter shall be creditable, as follows: With regard to the Second Transaction, the rules stated under Section 2.57.2(J) [now

l if after fall payment of the purchase price but before execution of +he nAS, the assignment shall be considered a separate sale of real property whis subject to CGT,or CWT/EWTas the case may be;or 2 if before it was fully paid, the difference between the:a agreed shall be subject to CGT or CWT/EWT,as th case may be.5 consideration between the buyer in this context, the assignor and the assignee; and (b amount actually paid by the assignor to the original seller

result in any realized gain. Hence, the same is not subject to CWT/EWT or CGT. SMDC to the Original Sellers, this Office hereby rules that the assignment of the rights, interest and obligations under each MOA covering the Properties to the Assignee will not SMDC; and (2) the amount actually paid by the Assignet is equivalent to the amount paid by In view thereof, considering that:(1 the Original Sellers are not yet fully paid by

On VAT

No. 16-2005,7 as amended, provides that: Section 105 of the Tax Code, as amended, as implemented by Section 4.105-1 of RR

sells. barters. exchanges. leases goods or properties. renders services. and any person who imports goods shall be subject to valu2-added tax (VAT) imposed in Sections 106 to 108 of the said Code. "Sec. 105.Persons Liable-Anv person who. in ihe course of trade or business.

BIR Ruling [DA-229-02],December 3,2002; BIR Ruling [DA-149-01j, September 3,2001 Consolidated Value-Added Tax Regulations of 2005, September 1, 205. BIR Ruling [DA-C-172)449-09], August 10, 2.BIR Ruling [DA-377-08], June 24,2008.

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SM DEVELOPMENT CORPORATION OT-30L -2022 JUN 2 3 2022

S XXX XX

members or their guests), or governm. nt entity pu.-uit of a commercial or an economic cctivitv. including transuctions incidor.al thereto. by any person regardless of whether or not the person engaged therein is a non-stock. non-profit privute organization (irrespective of the disposition of its net income ard whether or not it sells exclusively to "The phras. "in the course of trade or business " means the regular condvet or

imposed once there is an actual sale transaction where ownership is passed to the buyer. concerned VAT is imposed on the sale, barter or exchange thereof in the course of trade or business, including transactions incidental thereto. It must be emphasized that VAT is It is clear from the above-cited provisions that insofar as goods or properties are

of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertain.8 It bears stressing that in assignment of rights, the assignee merely steps into the shoes

has ruled that a deed of assignment of rights in real property does not equate to a sale and an assignment of rights in real property is not a sale of real property itself but the rights pertaining to such property.1, to wit: In BIR Ruling [L:A-(C-266) 671-09],9 citing B(R Ruling No. 83-1999,1o this Office

regulations considering that in assignments of rights the assignee merely steps into the shoes of the assignor wi:hout acquiring a better right than what the property under the Civil Code, are not included within the purview of the said assignor had in the property to which the rights assigned pertain. of real properties are subject to the final withhoiding tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended; and as implemented by RR No. 2-98. Hence, assignments of rights over realty although classified as real "From the foregoing, it is clear that oniy sales, exchanges or transfers

residetiuai condominium unit by Prestige Labels to La Vie under the Deed of but the rights pertaining to such properiy (BIR Ruling No.DA-252-96 dated July 18, 1996) assignment of rights in real property is not a decd of sale of real property itself Assignment with Assumption of Obligations doe's not eguate to a sale. Aed of Thus, the assighment of rights over the: Contract to Sell involving a

withholding tax under Revenue Regulations (RR) No. 2-98, as amended (BIR for the imposition of the-CGT or the VAT. Ruling No.031-01, dated March 13,2001).In the same vein, there is no basis Since no sale is involved, there is no basis for the imposition of

No.DA-240-01,dated November 16,2001Underscoring supplied section refers to th? sale of real property, which, is obviously not the case in this instance. In this regard, no DST can be imposed'on said assignment (BIR Ruling subject to DST under Section 196 of the 1997 Tax Code. as amended. Said Further.the assignment of rights,not behig a sale of real property, is not

Inc. U BIR Ruling [DA-C-266) 671-09], November i5, 2009; BIR Ruling [DA-504-05], December 16, 2005; Solid Homes. June 22, 1999, signed by Beethoven L Rualo, th. Commissioner of Internal Revenue. November 15, 2009 v.Spouses Artemio Jurado and Consuelo O.Jurado,G.R.No.219673,September 2,2019.

d. 0

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SM DEVELOPMENT CORPORATION OT-.304-2022 JUN 2 3 2022

the Assignee cannot be considered as sale. Consequently. since there was no sale. barter exchange or lease of the subject Prope.ti-s, there is no basis for the imposition of the VAT.12 Applied in this case,clearly, the assignment ofrights over the Properties by SMDC to

On DST

deeds, instruments or writings whereby land or realty sold shall be conveyed to t': purchaser, to wit: Undeection 196 of the Tax Code,as amended,DST is imposed on all conveyances

the actual consideration... xxx" (Underscoring Supplied) rates herein below prescribed, based on the consideration contracted to paid for contracting parties is the Government, the tax herein imposed shall be based on assigned. transferreddonated or otherwise-conveved to the purchases or purchasers, or donee, there shall be collected a documentary stamp tax, at the such realty or on its fair market value determined in accordance with Section 6 (E) of this Code. whichever is higher: Provided, That when one of the than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted. Property, on all comeyance, donations, deeds, instruments, or writings, other "SEC. 196. Stamp Tax on Deeds of Sale, Cor:veyance and Donation of Real

this instance. In this regard, no DST shall be imposed on said assignment3However, the said Deeds of Assignment is subject to the P30.00 DST on the notarial acknowledgment imposed under Section 188 of the Tax Code, as amended. amended. Said section refers to the sale of real property, which is obviously not the case in pertaining to such property is iot subject to DST uncer Section 196 of the Tax Code, as Thus, the assignment of rights, not being a sale of real property but merely rights

execution of the respective Deeds of Absolute Sale. the DST imposed under Section 196 of the Tax Code,as amended,accrues upon the execution of the respective Deeds of Absolute Sale but the basis for the imposition thereof shall be the gross sellir ~ nrice or fair markei value of the property, whichever is higher, at the ime of the execution of related MOAs.14Thus, the DST'over the same shall be paid by the Assignee (to whom the rights, interest and obligations under each of the MOAs were transferred) upon of real property paid under insiallmenpayment or deferred payment basis, the payment of It is however important to note that, considering that the First Transaction was a sale

without force and effect insofar as the herein parties are concerned. investigation it shall be disclosed that the actual facts are different, then this ruling shali be This ruling is issued oi the basis of the facts as represented. However, if upon

P

Very truly yours.

1eusaw

K- Co.nmissioner of Internal Revenue CAESAR R. DULAY 051951

2 BIR Ruling [DA-(C-266) 671-09], Nove nber 15, 2009

BIR Ruling No. DA-240-01, dated Novenber 16,2001 BIR Ruling No.634-2019, October 17,2019;RR No. 17-2003 dated March 31,2003 amending RR No. 2-1998, as amended.

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