BIR Ruling No. 437-2021

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

2402 BOUGAINVILLA HOLDINGS, INC 6786 Ayala Avenue, Brgy. San Lorenzo] Makati City, i226 27(D)(5); 39(A)(1), RR 7-2003 BIR Ruling No.187-17 BIR Ruling No. 014-03; BIR Ruling No. 634-17; BIR Ruling No. 480-17: CYS DEC 0 6 ZJ2T 17-2121

Gentleman: Attention: Atty. Ronaldo Modesto J. Ventura Authorized Representative

property held by for investment purposes is subject to the 6% capital gains tax under Section amended, but is not subject to value-added tax (VAT). BOUGAINVILLA HOLDINGS, INC. (BHI for brevity) for confirmation that the sale of real 27(D)(5) and documentary stamp tax under Section 196, both of the Tax Code of 1997, as This refers to your letter dated June 28, 2021 requesting on behalf of your client, 2402

6786 Ayala Avenue, Brgy. San Lorenzo, Makati City, 1226; that it is duly registered with the Securities and Exchange Commission (SEC) on September 06, 2017 under Company 6694 or as engaged in Financial Holdings Company. Registration No. CS201729888; and that is also registered with the BIR on September 20, 2017 with Taxpayers (dentification Number (TIN) No. It is represented that BHI is a domestic corporation with principal place of business at under Line of Business

hold, sell, exchange, deal and invest in real or personal property of all kinds, including stocks. vote therein, or consent in respeet thereof, for any and all purposes without however managing bonds, or securities of any public or private corporation, including any government or any subdivision thereof. in the same manner and to the extent as natural person. might could or would do, to exercise all the rights, powers and privilege or ownership, including the right to securities, portfolio or funds of the managed entity or firm nor the corporation shall act as stock dealer in securities. Provided that the corporation shall not solicit. accept or take investments/placements from the public neither shull it issue investment contracts. BHI was organized as a holding company whose primary purpose is to "to acquire,

itself out in public as engaged in buying and selling of real estate properties. On September Village, Makati City, NCR for investment purposes and not for sale or for lease in the ordinary course of business. This residential house and lot are covered by Transfer Certificate of Title square meters, more or less. and Tax Declaration Nos. the City of' Makati. 20, 2017, BHI acquired a residential house and lot located at Bougainvilla St., Dasmarinas No. As a holding company. BHI did not engage in real estate business nor advertise or hold : issued by the Registry of Deeds for Makati City with an area of l,288 and issued by

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property, the concerned Barangay issued a certification stating such fact. under Investment Property on taxable year 2018. To prove the non-use of the subject real as "Investment Property". As disclosed in Note 6 of the Notes to Financial Statement, the Company purchased lot and building in Makati City for P235,000,000.00 which was booked BHI in its operations. It has been reported in the Audited Financial Statements (AFS) of BHI Since its acquisition, the subject house and lot has not been developed nor utilized by

considered capital assets. subject real property owned by BHI for investment and capital appreciation purposes are and lot in favor of Ricky Chan Sy, an individual who is married to Eleanor Lynn Dy Sy, with due on the sale of the said property were already paid. Hence, this query on whether or not the residence at 2412 Bougainvilla St., Dasmarinias Village, Makati City. The corresponding taxes On November 27, 2020, BHI executed a Deed of Absolute Sale over the subject house

taxpayer or other property of a kind which would properly be included in the inventory of the Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. 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 trade or business, of a character which is subject to the allowance for depreciation provided in 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 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.GUIDELINESINDETERMINING WHETHER

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Treatment of abandoned and idle real properties. -- Real properties former?y is subsequently abandoned or becomes idle. Real property initiatiy acquired by a taxpayer engaged in the real estate 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. business shall not result in its conversion into a capital asset even if the same

Provided however, that properties classified as ordinary assets for heing husiness as defined in Section 2(g) hereof are automatically converted into husiness for more than two (2) vears prior to the consummation of the tuxahle transactions involving suid properties. (Emphasis supplied) used in business by a taxpayer engaged in business other than real estate cupital ussets upon showing of proof that the same have not heen used in

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

holding company; that the aforementioned property has been idle since the time of its property has no reported operation or commercial activity; and that the property has been April 17, 2017: 634-2017 dated December 19, 2017 and 480-2017 dated October 18, 2017) acquisition as shown, by the Certifications issued "by concerned City Assessor; that the concerned Barangay Chairman where the property is iocated issued a Certification that the treated in the books of accounts and are 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 are classified as capital assets, the conveyance of which is subject to capital gains tax and documentary stamp tax but not subject to VAT and creditable withholding tax. (BIR Ruling Nos. 187-2017 dated estate business, being not a real estate dealer, developer or lessor and was organized as a In view of the foregoing, and considering that BHI is a taxpayer not engaged in the real

if upon investigation, it will be disciosed 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,

SCM

Commissioner of Internal Revenue CAESAR R. DULAY 0475