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

Bureau of Internal Revenue Ruling

RAMO 1-2000

000-00

008-2003

Date:

SGV & CO.

6760

Ayala Avenue

1226

Makati City

Person to Contact: Chief, Law Division Tel. Nos. 926-55-36 / 927-09-63 September 08, 2003

Attention: Mr. Ruben R. Rubio Tax Division

Gentlemen:

This refers to your letter dated May 30, 2002 requesting a confirmation of your opinion that in the absence of established zonal values, the proper tax base applicable to pre-selling of real properties for creditable withholding tax (“CWT”) purposes under Revenue Regulations No. 6-2001 is the gross selling price or total amount of consideration paid.

It is represented that Cityland Development Corporation, Cityland Incorporated, and City and Land Developer’s, Inc., are all domestic corporations engaged in the real estate business; that although the construction of condominium units (“units”) and residential lot projects (“lots”) were still in progress, the units and/or lots are sold (pre- selling) to buyers and the corresponding CWTs are likewise paid; that since the zonal values of the units and the lots are not yet available at the time of pre-selling, the basis of the CWT paid is the gross selling price or the total amount of consideration in the Contract to Sell executed between the buyer and seller/owner, the three (3) real estate companies mentioned-above; and that the developer submitted a report to secure a license to pre-sell, however, it does not submit a report after the fact of sale.

In reply, please be advised that Section (6)(E) of the Tax Code of 1997 states:

“(E) Authority of the Commissioner to Prescribe Real Property Values.- The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is higher of:

(1)

the fair market value as determined by the Commissioner, or

(2)

the fair market value as shown in the schedule of values of the Provincial and City Assessors.”

In this regard Section 2.57.2(J)(B) of Revenue Regulations No. 2-98 as amended provides, to wit:

008-2003

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September 08, 2003

“Sec. 2.57.2. Income payments subject to creditable withholding tax and rates prescribed thereon. x x x x

(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset. – A creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule:

B.

x

x

x

Upon the following values of real property, where the seller/transferor is habitually engaged in the real estate business;

With a selling price of Five Hundred Thousand Pesos (P500,000) or less

1.5%

With a selling price of more than Five Hundred Thousand Pesos (P500,000.00) but not more than Two Million Pesos (P2,000,000)

3.0%

With a selling price of more than Two Million Pesos (P2,000,000)

5.0%

In determining the tax base, real estate companies and withholding agent/buyer should be guided by Revenue Audit Memorandum Order (RAMO) No. 1-2000 dated March 17, 2000, as amended. Thus, in a sale, transfer or exchange of real property, like pre-selling, where there is no established zonal value, Part XIV(B), paragraph 6.2 of RAMO No. 1-2000 provides, to wit:

“6.2 When the zonal value of land has not been established

6.2.1 Determine the total selling price/consideration per deed of sale of land and improvement.

6.2.1

Determine the value of land and improvements by using the following formula:

FMV of land per latest tax declaration

Add:

100% of FMV of land per latest tax

declaration if classified as residential Or agricultural other than

xxx

Fishponds/prawn farm Or 150% of FMV of land per latest tax declaration, if classified as commercial, industrial and agricultural devoted to fishponds/prawn farm

xxx

Value of Land Add: Value of improvements (from b

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or c of 6.1.1.)

3

6.2.3 Select the tax base of land and improvements

September 08, 2003

xxx

Selling price (6.2.1 or total market value of land and improvements per 6.2.2), whichever is higher.”

And paragraph (b) of Section 6.1.1 of the Handbook on Audit Procedures and Techniques, Vol. 1, as embodied in RAMO No. 1-2000, and as amended by RAMO No. 1-2001 dated February 15, 2001 provides:

“The FMV per latest tax declaration of the time of the sale or disposition , duly certified by the city/municipal assessor, shall be used. No

adjustments shall be added on the said value, provided that, the tax declaration bears the upgraded fair market value of the said property pursuant to Section

219 of R.A. No

1991” and the last paragraph of the Local Assessment Regulations No. 1-92 dated October 6, 1992.

7160, otherwise known as the “Local Government Code of

In case the tax declaration being presented was issued three (3) or more years prior to the date of sale or disposition of the real property, the seller/transferor shall be required to submit a certification from the city/municipal assessor whether or not the same is still the latest tax declaration covering the said real property. Otherwise, the taxpayer shall secure its latest tax declaration and shall submit a copy thereof, duly certified by the said assessor.”

Considering the foregoing, in the absence of established zonal value, Part XIV (B), paragraph 6.2 of RAMO No. 1-2000, as amended by RAMO No. 1-2001 as quoted, should be followed in determining the tax base for purposes of creditable withholding tax under Revenue Regulations No. 2-98, as amended. In the case of pre-selling if there is no zonal value nor a real property tax declaration, this Office confirms that the proper tax base shall be the gross selling price or total amount of consideration under Part XIV(B), paragraph 6.2.3 of RAMO No. 1-2000, as amended by RAMO No. 1-2001, whichever is higher.

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.

K-1

Very truly yours,

(Original Signed) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue