August 1, 2008

BIR RULING [DA-(C-020) 100-08]

Sec. 27 (D) (5); RR 7-2003; DA-592-

2006 dtd. 9/11/06

JP Capanas Law Office

Cebu Grant Hotel Arcade, Capitol Site
Escario St., Cebu City

Attention: Jonathan P. Capanas

CPA-Lawyer/Counsel

Gentlemen :

This refers to your letter dated July 1, 2008, in behalf of your client,
SEGURA DEVELOPMENT CORP., requesting a confirmatory ruling on your
opinion that the sales of Segura Development Corp. of its only real property
which remained idle and undeveloped from its acquisition and had been
consistently classified as an "investment property" in its books thereby
considered as capital asset, is accordingly:
(1) subject to the capital gains tax of 6% pursuant to Section 27 (D) (5)
of the Tax Code of 1997;
(2) subject to Documentary Stamp Tax at the rate of P15.00 for every
P1,000.00 or fractional part thereof in excess of P1,000.00, or
1.5% of the consideration or fair market value of the properties,
whichever is higher, pursuant to Section 196 of the Tax Code of
1997; and
(3) exempt from 12% VAT, pursuant to Section 109 (w), supra, as
amended by R.A. 9337, as implemented by Revenue Regulations
No. 16-2005 (BIR Ruling No. DA 560-06 dated September 19,
2006). ICTHDE

It is represented that SEGURA DEVELOPMENT CORP. (SDC for brevity),

is a corporation duly organized and existing under the laws of the Philippines
and is registered with the Securities and Exchange Commission on
September 10, 1991, with principal office address at 90 Gen. Maxilom Ave.,
Cebu City; that since SDC's incorporation, it has no property that formed
part of its inventory and is not leasing any property as such; that SDC did
not undertake any development on any real property since it did not actually
start commercial operation; that sometime in 2003, SDC acquired a vacant
property located in Cebu City covered by TCT No. 180976; that said property
is a vacant and/or idle land up to this date as evidenced by the Certificate of
No Improvement issued by the City Assessor of Cebu as well as a
certification issued by the Barangay Captain of the place where the property
is located; that it is the only real property owned by SDC as can be gleaned
from its Balance Sheet under the account title "Investment Properties"; that
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 said property was never used by SDC in its trade or business since there was
no commercial operation; that it is classified as a capital asset in its financial
statement; that the property was never subjected to depreciation nor
included in the stock in trade or inventory, nor held primarily for sale or
lease to customers in the ordinary course of its trade or business, and it was
never leased out since its acquisition; that now the corporation is
contemplating a dissolution of its corporate existence.
In reply, please be informed that under Section 27 (D) (5) of the Tax
Code of 1997, as amended, a final tax of six percent (6%) is imposed on the
gain presumed to have been realized on the sale, exchange or disposition of
lands and/or buildings which are not actually used in the business of a
corporation and are treated as capital assets, based on gross selling price or
fair market value as determined in accordance with Section 6 (E) of this
Code, whichever is higher, of such lands and/or buildings.
On the other hand, under Sec. 39 (A) (1) of the 1997 Tax Code, as
amended, the term "capital assets" is negatively defined as property held by
the taxpayer (whether or not connected with his trade or business) but does
not include (i) stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the taxpayer if on hand
at the close of the taxable year; or (ii) property held by the taxpayer
primarily for sale to customers in the ordinary course of his trade or
business; or (iii) 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 (iv) real property used in trade or business of the taxpayer.
Considering that SDC never commenced commercial operations since
its incorporation and in fact, is now contemplating to cease its corporate
existence, the subject real property registered under SDC's name, is
properly treated as capital assets. The said real property classified as
"investment property" which is idle, unproductive and unimproved since the
time of acquisition, and does not fall under any of the assets enumerated
under Section 39 (A) (1) of the Tax Code of 1997, as amended, and of
Revenue Regulations No. 7-2003, are classified as capital assets (BIR Ruling
DA-152-2004 dated March 31, 2004 cited in BIR Ruling No. DA-270-04 dated
March 17, 2004). The sale by the SDC of said property in furtherance of
SDC's liquidation, therefore, is subject to the 6% capital gains tax imposed
under Section 27 (D) (5) of the Tax Code of 1997, as amended. HIaTDS

Moreover, the sale of the above property of SDC treated as capital

asset is not subject to the 12% value-added tax imposed under Section 106
of the Tax Code of 1997, as amended. However, it is subject to the 1.5%
documentary stamp tax imposed under Section 196 of the same Code.
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,

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 Commissioner of Internal Revenue
By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

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