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    BIR Ruling 27-2002 July 3, 2002

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    Raiya Angela
    The document discusses the tax treatment of four different types of real estate sales transactions between corporations and individuals. For sales of real property treated as ordinary assets, withholding tax rates ranging from 1.5-5% apply depending on whether the seller is engaged in real estate business and the sale price. For real property treated as capital assets, a 6% final tax applies on any capital gain. The document provides the specific withholding tax rates and rules that apply to each of the four sales transactions.

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    BIR Ruling 27-2002 July 3, 2002

    Uploaded by

    Raiya Angela
    76 views5 pages
    The document discusses the tax treatment of four different types of real estate sales transactions between corporations and individuals. For sales of real property treated as ordinary assets, withholding tax rates ranging from 1.5-5% apply depending on whether the seller is engaged in real estate business and the sale price. For real property treated as capital assets, a 6% final tax applies on any capital gain. The document provides the specific withholding tax rates and rules that apply to each of the four sales transactions.

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    BIR Ruling

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    The document discusses the tax treatment of four different types of real estate sales transactions between corporations and individuals. For sales of real property treated as ordinary assets, withholding tax rates ranging from 1.5-5% apply depending on whether the seller is engaged in real estate business and the sale price. For real property treated as capital assets, a 6% final tax applies on any capital gain. The document provides the specific withholding tax rates and rules that apply to each of the four sales transactions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    76 views5 pages

    BIR Ruling 27-2002 July 3, 2002

    Uploaded by

    Raiya Angela
    The document discusses the tax treatment of four different types of real estate sales transactions between corporations and individuals. For sales of real property treated as ordinary assets, withholding tax rates ranging from 1.5-5% apply depending on whether the seller is engaged in real estate business and the sale price. For real property treated as capital assets, a 6% final tax applies on any capital gain. The document provides the specific withholding tax rates and rules that apply to each of the four sales transactions.

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    July 3, 2002

    BIR RULING NO. 027-02


    RR 6-2001
    Sentosa Park Property Development Corporation
    1760 Evangelista cor. Macabulos Sts.,
    Bangkal, Makati City
    Attention: Ms. Flordeliza S. Manuel
    Executive Assistant
    Gentlemen :
    This refers to your letter dated September 3, 2001 requesting for a ruling on
    the tax consequences of the following sales transactions:

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    1.

    Sale of a real estate property wherein the seller and the buyer
    are both corporations and are engaged in real estate business.
    Both corporations are issued a certification by the Housing &
    Land Use Regulatory Board (HLURB) to that effect. The seller
    has also been issued a License to Sell by the HLURB;

    2.

    Sale of real estate property by a corporation engaged in real


    estate business to another corporation not engaged in real estate
    business. The corporation engaged in real estate business, being
    the seller, is issued a certification by the HLURB to that effect.
    The seller has also been issued a License to Sell by the
    HLURB;

    3.

    Sale of a real estate property by a corporation not engaged in


    real estate business to another corporation engaged in real estate
    business; and

    4.

    Sale of real estate property by a corporation engaged in real


    estate business to individual buyer. The corporation engaged in
    real estate business, being the seller, is issued a certification by
    the HLURB. The seller has also been issued a License to Sell

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    Philippine Taxation Encyclopedia First Release 2014

    by the HLURB.
    In reply, please be informed of the following:
    It is noted that, except for No. 3, the situations you presented involve a
    seller that is engaged in real estate business. However, you did not specify in each
    of these instances, whether the property being sold is an ordinary asset or a capital
    asset in the hands of the seller.
    It is necessary to first determine the character of the real property being
    sold. Thus, if the real property is a land or building which is not actually used in
    the business of the seller-corporation and is treated as a capital asset, as that term
    is defined in Section 39 (A) of the 1997 Tax Code, then a final tax of six percent
    (6%) shall be imposed on the gain presumed to have been realized on its sale,
    exchange or disposition of such land or building based on the gross selling price or
    fair market value as determined in accordance with Section 6(E) of the Tax Code
    of 1997, whichever is higher of such land and/or building. This rule applies,
    whether or not the seller-corporation is engaged in real estate business. [Sections
    27 (D) (5); 1997 Tax Code].
    On the other hand, it is only when the real property being sold is an
    ordinary asset that the withholding tax rates imposed under Section 2.57.2 of
    Revenue Regulations No. 2-98, as amended, shall apply. The rate of withholding
    tax will depend on whether, first, the seller is exempt or taxable; second, whether
    the seller is habitually engaged in real estate business or not; and third, if the seller
    is habitually engaged in real estate business, the gross selling price, as that term is
    defined in the above-mentioned Revenue Regulations.
    Based on the foregoing discussion, and on the assumption that the seller in
    each case is not exempt, we rule as follows on each situation in the same order as
    they are presented above.
    1. Section 2.57.2 of Revenue Regulations No. 2-98, as amended,
    provides that where the seller is a corporation duly registered with the HLURB as
    habitually engaged in the real estate business, 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 1997 Tax Code, whichever is
    higher, paid to the seller/owner for the sale, transfer or exchange of real property,
    other than capital asset, shall be deducted by the withholding agent/buyer, in
    accordance with the following schedule:
    A.

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    Where the seller/transferor is exempt from creditable


    withholding tax in accordance with Sec. 2.57.5 of these
    Regulations
    Exempt

    CD Technologies Asia, Inc. and Accesslaw, Inc.

    Philippine Taxation Encyclopedia First Release 2014

    B.

    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 (P500,000.00) 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 (P2,000,000.00)

    3.0%

    With a selling price of more than Two Million


    Pesos (P2,000,000.00)

    5.0%

    2. The above tax treatment shall likewise apply in cases where the
    seller-corporation is habitually engaged in the real estate business, even if the
    buying corporation is not engaged in real estate business.
    3. As stated earlier, Section 2.57.2(J) of Revenue Regulations No. 2-98,
    as amended, applies only in cases where the real estate property is an ordinary
    asset. Thus, if the property is an ordinary asset, since the seller is not habitually
    engaged in the real estate business, the rate of creditable withholding tax is six
    percent (6%) of the gross selling price as provided in Section 3(J) of Revenue
    Regulations No. 6-2001. On the other hand, if the real property is land or building
    which is not actually used in the business of the seller-corporation, and is treated
    as a capital asset, a final tax of six percent (6%) is hereby imposed on the gain
    presumed to have been realized on the sale, exchange or disposition of land and/or
    building pursuant to Section 27 (D) (5) of the Tax Code of 1997; and
    4. Section 2.57.2 of Revenue Regulations No. 2-98, as amended by
    Section 3 of Revenue Regulations No. 6-2001, provides that where the
    seller-corporation who is habitually engaged in the real estate business sell real
    property/ies held as ordinary asset to an individual not engaged in trade or
    business, the following rules shall apply:
    (i)

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    If the sale is a sale of property on the installment plan (that is,


    payments in the year of sale do not exceed 25% of the selling
    price), no withholding of tax is required to be made on the
    periodic installment payments. In such a case, the applicable
    rate of tax based on the gross selling price or fair market value
    of the property, whichever is higher, shall be withheld on the
    last installment or installments to be paid to the seller until the
    tax is fully paid.

    CD Technologies Asia, Inc. and Accesslaw, Inc.

    Philippine Taxation Encyclopedia First Release 2014

    (ii)

    If, on the other hand, the sale is on a "cash basis" or is a


    "deferred-payment" sale not on the installment plan" (that is,
    payments in the year of sale exceed 25% of the selling price),
    the buyer shall withhold the tax based on the gross selling price
    or fair market value of the property, whichever is higher, on the
    first installment.

    However, if the buyer is engaged in trade or business, whether a


    corporation or otherwise, these rules shall apply:
    (i)

    If the sale is a sale of property on the installment plan (that is


    payments in the year of sale do not exceed 25% of the selling
    price), the tax shall be deducted and withheld by the buyer on
    every installment.

    (ii)

    If, on the other hand, the sale is on a "cash basis" or is a


    "deferred-payment sale not on the installment plan" (that is,
    payments in the year of sale exceed 25% of the selling price),
    the buyer shall withhold the tax based on the gross selling price
    or fair market value of the property, whichever is higher, on the
    first installment.

    For purposes of applying the foregoing rules, "gross selling price" shall
    mean the consideration stated in the sales document or the fair market value
    determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever
    is higher.
    Finally, registration with the HLURB or HUDCC shall be sufficient for a
    seller/transferor to be considered as habitually engaged in the real estate business.
    If the seller/transferor is not registered with HLURB or HUDCC, he/it may prove
    that he/it is engaged in the real estate business by offering other satisfactory
    evidence (for example, he/it consummated during the preceding year at least six
    taxable real estate transactions, regardless of amount).
    Please be guided accordingly.

    Very truly yours,

    (SGD.) REN G. BAEZ


    Commissioner of Internal Revenue

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    Philippine Taxation Encyclopedia First Release 2014

    Copyright 2014

    CD Technologies Asia, Inc. and Accesslaw, Inc.

    Philippine Taxation Encyclopedia First Release 2014

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