BIR Ruling No. 556-2020

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

27D(5;39(A1,RR 7-2003 BIR Ruling No. 014-03; BIR Ruling No. 634-17; BIR Ruling No. 480-17; BIR Ruling No. 187-17

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Bacolod City ACFC Bldg., Libertad-Lopez Jaena Sts. BACOLOD GOLDEN ROCK CONSTRUCTION AND DEVELOPMENT CORPORATION

Attention: WILLY UY AU

President

Gentleman:

subject to the 6% capital gains tax under Section 27(D)(5) and documentary stamp tax under Bacolod Golden Rock Construction and Development Corporation ("BGRCDC? for brevity). for confirmation that the sale of real property held by BGRCDC for investment purposes is Section 196, both of the Tax Code of 1997, as amended, but is not subject to value-added tax (VAT). This refers to your letter dated August 17, 2020 requesting on behalf of your client.

business at Reclamation Area, Bacolod City.It is duly registered with the Securities and Line of Business of general construction business with the following PSIC Codes Exchange Commission (SEC) with Registration No. the BIR on February 12,2007,with Taxpayer Identification Number (TIN) It is represented that BGRCDC is a domestic corporation with principal place of and It is also registered with , under

in general construction, including the construction, enlarging, developing or engaging in any work upon building, houses and condominium, roads, plants, bridges, airfields, piers. waterworks, and other structures, buying and selling of general construction materials and supplies and its accessories as steel bars, cements and all elements as paints, plywood, electrical supplies and others. It is organized as a general construction business and its primary purpose is to engage

advertise or hold itself out in public as engaged in buying and selling of real estate properties. BGRCDC owns a parcel of land for investment purposes and not for sale or lease in the ordinary course of business. The parcel of land ("subject real property" for brevity) is covered by Transfer Certificate of Title (TCT) No located at Poblacion, Bacolod City As a general construction business, BGRCDC did not engage in real estate business nor with an area of square meters

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BGRCDC in its operations. It does not form part of its inventory nor was held primarily for sale in the ordinary course of trade or business and has been recorded and reported in the Audited Financial Statements (AFS) of BGRCDC as Investment Properties and disclosed under Notes to Financial Statement No. 6, "land for capital appreciation". The subject real property was never claimed as depreciable expense as can be seen in its audited financial statements and Income Tax Return (ITR).To prove that it is an idle lot and has never been used in business of the subject real property, the concerned Barangay issued a certification Certification for Land with No Improvement stating that records of this Office do not show of any residential house/improvement/s situated on the property/ties". stating such fact.Also, the concerned Office of the City Assessor of Bacolod City issued a Since its acquisition, the subject real property was not developed nor utilized by

owned by BGRCDC for investment and capital appreciation purposes is considered capital asset. Tri Star Megalink Corporation. The corresponding taxes due on the sale of the said real property were already paid. Hence, this query on whether or not the subject real property BGRCDC executed a Deed of Absolute Sale over the subject real property in favor of

taxpayer or other property of a kind which would properly be included in the inventory of the Section 39(A)(1) of the Tax Code of 1997, as amended, means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. In reply, please be informed that the term "capital asset" as negatively defined in

(RR) No. 7-2003, particularly Section 3(e) thereof, provides to wit: An idle property may be classified as capital or ordinary asset. Revenue Regulations

PARTICULAR REAL PROPERTY IS A CAPITAL ASSET OR ORDINARY ASSET. SEC.3.GUIDELINES N DETERMININGWHETHER A

XXX XXX XXX

is subsequently abandoned or becomes idle. forming part of the stock in trade of a taxpayer engaged in the real estate business, or formerly being used in the trade or business of a taxpayer engaged or not engaged in the real estate business, which were later on abandoned and became idle, shall continue to be treated as ordinary assets. Real property initially acquired by a taxpayer engaged in the real estate business shall not result in its conversion into a capital asset even if the same Treatment of abandoned and idle real properties. -- Real properties formerly

Provided however, that properties classified as ordinary assets for being used in business by a taxpayer engaged in business other than real estate capital assets upon showing of proof that the same have not been used in business as defined in Section 2(g) hereof are automatically converted into

business for more than two-(2) years prior to the consummation of the taxable transactions involving said properties. (Emphasis supplied) OT-0 5 5 6 - 20 2 SEP 2 4 2020

converted into capital asset upon showing of proof that the same has not been used in business for more than two (2) years prior to the consummation of the taxable transaction involving said properties. The automatic conversion of property into capital asset provided in RR No. 7-2003, however, is not necessary when the idle real property is considered capital asset from the moment it was acquired. The subject real property was acquired for investment purposes and recorded/reported by BGRCDC as capital asset. The property was never used in the course of trade or business of BGRCDC, or depreciated for that purposes. No improvements were introduced to the subject real property as certified by the concerned City Assessor where the property is located. The concerned Barangay also issued a Certification of Non-Use of the subject real property. More importantly, BGRCDC is not engaged in the real estate business, it did not operate from the time it was incorporated and thus, it has no income-generating activity. Based on the above, an idle property classified as ordinary asset is automatically

the real estate business, being not a real estate dealer, developer or lessor and was organized as In view of the foregoing, and considering that BGRCDC is a taxpayer not engaged in

a general construction business; that the aforementioned property has been idle and vacant

since the time of its acquisition as shown by the Certification of the concerned City Assessor

that there is no improvement erected on the land, as well as the Certification of concerned Barangay Chairman where the property is located; that the property has no reported operation or commercial activity; and that the property has been treated in the books of accounts and is

reflected in the audited financial statement as investment property and has not been used in the

ordinary course of trade or business, it is the considered opinion of this Office that the subject

real property described above is classified as capital asset, the conveyance of which is subject

to capital gains tax and documentary stamp tax and consequently not subject to VAT and creditable withholding tax. (BIR Ruling Nos. 187-2017 dated April 17, 2017; 634-2017 dated

December 19, 2017 and 480-2017 dated October 18, 2017)

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.

faesaMtan

CAESAR R.DULAY

Commissioner of Internal Revenue

036480 Na

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