August 18, 2009

BIR RULING [DA-(C-179) 464-09]

27 (D) (5); 57; 106; 188; 196; RR

6-2001;
#174-90; #83-99; DA-436-98;
DA-466-99;
DA-107-2000; DA-263-2000;
DA-229-2002

Crown Communities (Bulacan), Inc.

Units 12 & 14, Twin Plaza Complex
Km42 Mc Arthur Highway, Bulihan
Malolos City, Bulacan

Attention: Ms. Ailene R. Sarmiento

General Manager

Gentlemen :

This refers to your letter dated July 29, 2009 requesting for confirmation of
your opinion that the assignment of rights over a real property is not subject to
creditable withholding tax or capital gains tax since the assignment did not result to
any gain on the part of the assignor Northwinds Prime Properties, Inc. and said
transaction is likewise not subject to VAT and documentary stamp tax (DST) under
Section 196 of the NIRC of 1997 since there was no conveyance of real property but
only an assignment of rights.

Background

On November 28, 1995 ADR Farms, Inc. ("ADR") and Northwinds Prime
Properties, Inc. ("Northwinds") entered into a Memorandum of Agreement ("MOA")
to evidence their agreement to the effect that the Vendor will sell to the Vendee a
parcel of land situated in Barrio Lugam, Malolos, Bulacan covered by TCT No.
T-52755, containing an area of 546,349 square meters for an aggregate amount of
One Hundred Twenty Million One Hundred Ninety Six Thousand Seven Hundred
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 Eighty Pesos (P120,196,780.00) subject to the terms of payments and other
conditions as agreed by the aforementioned parties.

Then on February 13, 2006, Northwinds assigned its rights over the
above-mentioned MOA in favor of Crown Communities (Bulacan), Inc. ("Crown
Bulacan") through a Deed of Assignment whereby Northwinds assigned, transferred
and conveyed all of its rights, title and interest in, to and under the MOA in favor of
Crown Bulacan. In exchange therefor, Crown Bulacan pays Northwinds the sum of
Thirty Five Million Pesos (P35,000,000.00), which is equivalent to the total amount
actually paid by Northwinds to the vendor ADR. CDAEHS

In reply, please be informed that the Deed of Assignment executed by and

between Northwinds and Crown Bulacan involving transfer of rights to real property
is not subject to the creditable withholding tax, capital gains tax, VAT and DST under
Section 196 of the Tax Code of 1997, as amended. It is, however, subject to the
P15.00 DST under Section 188 of the same Code.

In BIR Ruling No. 083-99 dated June 22, 1999, this Office ruled —

". . . it is clear that the sale of rights over realty although classified as
real property under the Civil Code, is not the realty contemplated on the said
Section considering that to be subject to the capital gains tax imposed under
Section 24(D)(1) of the Tax Code of 1997, the realty in question must be
located in the Philippines while right over real property may or may not be
located in the Philippines since such kind of realty follows the owner thereof
who may or may not be in the Philippines. Such being the case, this Office is
of the opinion as it hereby holds that transfer of rights over realty, as in this
case, is not subject to the capital gains tax. Thus, the sale of rights over real
property, as in this case, what is actually being sold is the right which the
seller has over the said realty, so much so that whomsoever buys the said
rights merely steps into the shoes of the seller and acquires whatever right he
may have over the realty concerned, but title thereto, remains with the seller
(realty company)." aTIAES

Similarly, in BIR Ruling No. DA-436-98, this Office, in granting a request for
exemption from payment of the capital gains tax and DST on Assignment of Rights
with Assumption of Mortgage in a Contract to Sell, ruled that —

"In the instant case, however, your sale in favor (sic) the Mr. & Mrs.
Alfredo Yambao was not a sale, exchange or disposition of real property
classified as capital asset located in the Philippines but rather a sale of right
pertaining to such property, hence, not included within the provision of
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 Section 24(D)(1) of the Tax Code of 1997. This is so, considering that in
assignments of rights, the assignee merely steps into the shoes of the assignor
without acquiring a better right than what the assignor had in the property to
which the assigned right pertains.

"Moreover, a Deed of Assignment of Right is not a Deed of Sale

because what is conveyed by the assignor is not the property itself but the
rights pertaining to such property. It is however understood that the gain
derived by the assignor from and as a consequence thereof, is subject to
income tax. (BIR Ruling No. 174-90 dated September 10, 1990)" (emphasis
supplied) SEHACI

Further, in BIR Ruling No. DA-107-00 dated February 18, 2000, this Office
granted a taxpayer's request for exemption from the payment of the 6% capital gains
tax in a case where there was an assignment of rights by a corporation-vendee in
favor of certain individuals over a condominium unit while title to the same remained
with the vendor-developer. It was ruled that in such sale of right over land/buildings,
the vendor-developer is not subject to the capital gains tax imposed under Section 27
(D) (5) of the Tax Code of 1997 and to the CWT imposed under Section 57 (B) nor to
the DST prescribed under Section 196 of the same Code. However, the Deed of
Assignment of Rights is subject to the P15.00 DST on the notarial acknowledgment
on said Deed.

On the basis of the foregoing BIR Rulings, it is clear that the Deed of
Assignment by and between Northwinds and Crown Bulacan involving transfer of
rights to real property is not subject to the 6% capital gains tax under Section 27 (D)
(5) of the Tax Code of 1997, as amended, nor to the creditable withholding tax under
Revenue Regulations No. 2-98, as amended, nor to the VAT and DST under Sections
106 and 196, both of the Tax Code of 1997 since the Deed of Assignment is not
considered a sale of realty because what is conveyed is not the property itself but the
rights pertaining to such property. The assignee (Crown Bulacan) merely steps into
the shoes of the assignor (Northwinds) without acquiring a better right than what the
assignor had in the property to which the assigned right pertains. However, the said
Deed of Assignment is subject to the P15.00 DST on the notarial acknowledgment
imposed under Section 188 of the Tax Code of 1997, as amended.

Accordingly, this Office hereby confirms your opinion that the assignment of
rights over a real property is not subject to creditable withholding tax or capital gains
tax since the assignment did not result to any gain on the part of the assignor
Northwinds Prime Properties, Inc. and said transaction is likewise not subject to VAT
and documentary stamp tax (DST) under Section 196 of the NIRC of 1997 since there
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Third Release 2017 3
 was no conveyance of real property but only an assignment of rights.

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. cHCaIE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

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