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Madam:
This refers to your letter dated November 28, 2007 requesting, on behalf of
your client, Mona Lisa Development, Inc. (Mona Lisa), for confirmation of your
opinion on the tax consequences of the intended sale of a condominium unit
owned by Mona Lisa, a non-resident foreign corporation, to a third-party buyer.
ACHEaI
1) Under Section 28 (B) (1) of the 1997 Tax Code, as amended, Mona
Lisa, being a non-resident foreign corporation shall be subject to 35% on its gross
income from all sources within the Philippines, such as interests, dividends, rents,
royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits
and income, and capital gains, except capital gains realized from sale, exchange or
disposition of shares of stock in a domestic corporation not traded in the stock
exchange. Consequently, said tax shall be withheld pursuant to Section 2.57 (I) (1)
of Revenue Regulations No. 2-98, as amended.
"Income in the broad sense, means all wealth which flows into the
taxpayer other than mere return of capital. It includes the forms of income
specifically described as gains derived from the sale or disposition of
assets."
"The three elements for the imposition of income tax are: (1) there
must be gain or profit, (2) the gain or profit is realized or received, either
actually or constructively, and (3) the gain is not exempted by law or treaty
from income tax (Commissioner of Internal Revenue vs. Court of Appeals,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 2
et al., G.R. No. 108576, January 20, 1999, 102 SCAD 119). IHEaAc
Consistent with the foregoing, the gross income in relation to sale of real
property located in the Philippines was interpreted by Revenue Regulations No.
7-03 as the gain from the sale thereof, i.e., the difference between the gross selling
price and the cost.
Consequently, only the gain from the sale by Mona Lisa of the Property
shall be subject to 35% final withholding tax pursuant to Section 4 (e) of RR 7-03
and Section 2.57 (I) (1) of RR 2-98, as amended in relation to Section 28 (B) (1) of
the 1997 Tax Code, as amended. SCaIcA
(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor: Provided, That the President,
upon recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
(P) Sale of real properties not primarily held for sale to customers
or held for lease in the ordinary course of trade or business, . . ."
Given that the subject unit was acquired primarily for the purpose housing
its visiting personnel and not for sale or lease in the ordinary course of its trade or
business, the subsequent sale thereof by Mona Lisa shall not be subject to 12%
VAT. (BIR Ruling No. DA-006-06 dated January 10, 2006; BIR Ruling No.
DA-201-06 dated April 3, 2006; BIR Ruling No. DA-232-06 dated April 11, 2006;
BIR Ruling No. DA-305-06 dated May 10, 2006) aScIAC
Finally, the subsequent sale of said unit by Mona Lisa shall be subject to
documentary stamp tax at the rate of P15.00 for every P1,000.00 or fractional part
thereof under Sec. 196 of the 1997 Tax Code, as amended.
By: