BIR REVENUE MEMORANDUM CIRCULAR NO. 7-90, January 16, 1990
CREDITABLE WITHHOLDING TAX ON SALES, EXCHANGES OR TRANSFERS OF REAL PROPERTY.
properties are required to file their capital gains tax returns within
30 days from date of sale/exchange at the Office of the Revenue District
Officer where the property is located. This procedure is followed for
all types of taxpayers, corporation or otherwise, whether taxable or
exempt from the capital gains (final) tax. However, the gain from sale
or exchange of real property by persons exempt from the capital gains
(final) tax must be declared for income tax purposes in the seller’s
regular income tax returns required to be filed after the end of the
taxable year (for individual taxpayers) or after the end of the quarter
for corporate taxpayers).
It has been observed lately that many sellers of real properties, who
are exempt from the capital gains tax, do not include in their income
tax returns the gain from their sales of real properties. This
non-reporting of gain has been made possible because of the defect in
the system – the Certificates Authorizing Registration (CAR) are
generally secured from the Revenue District Officer where the property
is situated and the regular income tax returns are required to be filed
in the place of residence or principal place of business of the
taxpayer. Because of this, the Bureau of Internal Revenue is
experiencing some difficulties in monitoring and matching these
transactions during audit.
In order to prevent further leakage of revenues from these
transactions, Revenue Regulations No. 12-89 dated December 21, 1989,
subjecting sales of real property other than capital assets to the
creditable withholding tax was issued. The rates prescribed in Revenue
Regulations (RR) No. 12-89 were, however, deemed high by the various
associations engaged in real estate industry, considering that the basis
of the withholding tax is the gross selling price. The real estate
industry officials expressed their fear that the industry might
eventually collapse as a result of the spiralling costs of construction
materials, labor, and interest rates, which is exacerbated by the
imposition of the high withholding tax rates. It is also feared that
there might be numerous claims for tax credits filed in the future;
hence, RR No. 1-90 dated January 16, 1990 (see p._was issued to amend RR No. 12-89.
This Circular seeks to clarify and amplify some pertinent provisions of the aforesaid regulations.
1. Coverage. All sales, exchanges, or transfers of
real properties (whether classified as ordinary or capital asset) by
corporations, consummated on or after January 1, 1990, are subject to
the creditable withholding tax. However, in the case of individuals,
estates, trusts, trust funds or pension funds, only sales, exchanges or
transfers of real properties classified as ordinary assets, consummated
on or after January 1, 1990, are subject to the creditable withholding
tax. Sales by individuals of real properties classified as capital
assets remain subject to the 5% capital gains (final) tax.
As provided for in RMC 80-89, the date of
notarization appearing on the Deed of Sale shall be considered prima
facie the date of consummation of the contract of sale. In the case of
sales evidenced by public instruments notarized on or before November
30, 1989, the same shall be deemed consummated on the date the Deed of
Sale/Transfer is filed with or submitted to the proper revenue office,
except in exceptional circumstances where the taxpayer can prove by
documentary evidence other than the Deed of Sale/Transfer that the
public instrument was truly executed and notarized on the date shown
therein.
Illustrations. (a) If the Deed of Sale notarized on November
10, 1989 was presented to the proper revenue official within 30 days
from date of sale, such transaction is not subject to the withholding
tax provision of RR No. 12-89.
(b) If such Deed of Sale was submitted to the proper
revenue officer after 30 days from date of sale but before January 1,
1990; i.e., anytime between December 10 to December 31, 1989 in the
example, the same is still not subject to the creditable withholding tax
but subject to the penalties for late filing of the capital gains tax
return and late payment of the tax.(c) The above transaction becomes subject to the
creditable withholding tax if presented only on or after January 1,
1990.(d) If a Deed of Sale notarized on December 10, 1989 was
presented to the BIR not later than January 9, 1990, such transaction is
not subject to the creditable withholding tax. However, if the sales
document was submitted to the BIR only on January 15, 1990, the sale is
already subject to the creditable withholding tax because more than 30
days have elapsed from the date of sale.
The reason for the cut-off date is to prevent ante-dating of public
instruments transferring real properties. However, the Revenue District
Officer may issue the CAR without the payment of the creditable
withholding taxes where the taxpayer can clearly prove that there was
not antedating and the late submission of the Deed of Sale was due to a
reasonable and justifiable cause, such as when due to a fire in the
Quezon City Hall the title to the property was destroyed and had to be
judicially reconstituted, or the Contract To Sell shows the last
installment to have been paid on or before November, 1989, or the new
Deed of Sale amends only some minor details in the old Deed of Sale
notarized in 1989 like adding the Tax Account Numbers of the contracting
parties. In such case, the revenue enforcement officer should state in
his written report the relevant circumstances and attach to his report
the other documents submitted by the taxpayer.
When the seller of real property is an entity exempt from income tax
(e.g., GSIS, SSS, qualified pension plan), no withholding of tax is
required to be made thereon. In such a case, the seller must execute an
affidavit establishing its exemption from income tax and submit the same
together with the relevant law, decree or executive order. However, if
the seller is an exempt entity under Article 26 of the Tax Code, the
gain from sale of real property is still subject to income tax and
consequently to the withholding tax, because the last paragraph of said
section provides that “notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, x.x.x,
regardless of the disposition made of such income, shall be subject to
tax imposed under this Code.”
2. When tax deducted and withheld creditable. In the
case of a corporation, all sales or exchanges of real property, whether
classified as ordinary or capital asset, shall be subject to the
expanded withholding tax. The amount of withholding tax paid during the
quarter to the BIR evidenced by Confirmation/Official Receipts (CR/ROR)
and covered by BIR Form Nos. 1743W and 1743-B, is creditable against its
income tax liability for the quarter in which payments or remittance of
taxes were made.
On the other hand, the sale or exchange of real property by an
individual, estate, or trust becomes subject to the withholding tax only
if the property is classified as an ordinary asset. The corresponding
withholding taxes deducted and withheld, which are paid or remitted to
the BIR (CR/ROR and BIR Form Nos. 1743W and 1743-B), may be credited
against his income tax liability for the taxable year.
No withholding of tax is required where the real property sold by an
individual is a capital asset subject to the 5% capital gains (final)
tax.
3. Rates of withholding taxes. The rates of
withholding tax prescribed in RR 12-89 have been reduced from 10%, in
the case of corporations, and 15%, in the case of individuals, estates
and trusts to a uniform rate of:
0% — where the vendor is registered with and
certified to as engaged in low-cost housing projects by the Housing and
Urban Development Coordinating Council (HUDCC)/Housing and Land Use
Regulatory Board (HLURB) and the consideration for the sale of the lot
or house and lot per transaction does not exceed P500 ,000. The
transaction, however, is still subject to the regular income tax and
should be reported in the taxpayer’s income tax return.2.5% — where the vendor is habitually engaged in
real estate business, certified as member by the Chamber of Real Estate
and Builders Association, Inc. (CREBA), and is registered with
HUDCC/HLURB; and5% — where the vendor is not habitually engaged in real estate business;
under RR 1-90 and the same rates apply to corporations and
individuals on their sales of real property beginning February 1, 1990.
Where any of the conditions for the application of 0% or 2.5% is not
met, the sale is subject to the 5% creditable withholding tax.
For purposes of this Circular, a vendor shall be considered
“habitually engaged in real estate business” if he has consummated
during the preceding year at least six taxable real estate transactions,
regardless of amount. A vendor who has previously been accredited by
CREBA and registered with HUDCC/HLURB may still be considered habitually
engaged in real estate business even if the number of sales made during
the year falls below six. The duty of determining whether or not the
vendor is habitually engaged in real estate business rests upon the BIR.
The role of CREBA is to certify that the vendor is an accredited
member of one of its affiliated associations and it may assist the BIR
in determining whether or not a person is habitually engaged in real
estate business.
In order to simplify tax administration, the reduced rates in RR 1-90
may be withheld and paid by the withholding agent on real estate
transactions consummated before February 1, 1990, if the sales document
is presented to the BIR on or after February 1, 1990. In other words,
beginning February 1, 1990, the test to be used for purposes of
determining whether the transaction is subject to the old or new
withholding tax rates is the date of receipt or presentation of the Deed
of Sale to the BIR.
Since the BIR does not want to refund taxes already paid by taxpayers
on prior transactions at the higher rates, and in order to be fair to
those who have paid at the old rates, the “date of presentation” test
shall also be applied to applications for the issuance of CAR filed with
the BIR in January, 1990. Thus, if the Deed of Sale notarized, for
example, on January 5, 1990 is presented to the BIR on January 15, 1990,
the rate of withholding tax prescribed in RR 12-89 shall still be
applied thereto, even though the amount of tax is paid in February,
1990.
4. Application of other provisions in RR 6-85 real estate transactions.
Considering that sales or exchanges of real properties covered, by the
aforementioned regulations are merely added as one of the income
payments subject to the expanded withholding tax provisions in Revenue
Regulations No. 6-85, all other provisions of said regulations shall
also apply to sales of real properties. For example, the obligation of
the payor to deduct and withhold arises at the time the consideration is
paid or payable. The required withholding tax return shall be filed
and the tax shall be remitted within ten (10) days after the end of each
month.
5. Withholding tax base. The regulations provide that
the basis of the withholding tax shall be the gross selling price or the
total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange, or transfer of the real property.
For purposes of these regulations, the term “Gross selling price” means
the consideration stated in the sales document or the fair market
value/zonal value, whichever is higher. In exchange, the fair market
value of the property shall be used.
In case of installment sales, only such amounts paid beginning in
1990 shall be subject to the withholding tax. This is in consonance
with the rule that regulations shall apply prospectively. Thus, past
installment payments made before 1990 should not be subject to the
expanded withholding tax provision because the requirement was imposed
only in January, 1990.
6. Individuals as withholding agents and installment sales.
Where the consideration or part thereof is payable on installments, no
withholding of tax is required to be made on the installment payments
where the buyer is an individual not engaged in any trade or business.
In such a case, the withholding of tax shall be made on the last
installment(s) paid beginning January, 1990 to the seller. On the other
hand, the applicable rate of withholding tax shall be deducted and
withheld by the buyer of the real property, whether in corporate form or
otherwise, who is constituted as a withholding agent, if he is engaged
in any trade or business. He is presumed to have previously registered
as such with the appropriate district office.
If the withholding taxes on the installment payments have been
withheld and remitted to the BIR on the dates prescribed in RR 6-85, no
further withholding tax shall be imposed when the final Deed of Sale is
executed by the contracting parties. The duty to prove that such
withholding of taxes on installments subject to the provisions of RR
12-89 and 1-90 have been made and paid to the BIR rests upon the
buyer-withholding agent.
7. When to issue certificate. No Certificate
Authorizing Registration (CAR) shall be issued by the appropriate
internal revenue official, unless the Confirmation Receipt or official
receipt evidencing payment of the creditable withholding tax on the
particular transaction is presented to him. For this purpose, it is
required that the necessary information regarding such payment of
withholding tax should be typed and reflected on the face of the
certificate to be issued by the internal revenue officer concerned.
8. Reporting requirement. In order to effectively
implement the provisions of the regulations, all officials authorized to
issue the certificates are instructed to add a new column “Expanded
Withholding Tax Paid” in the monthly report of transactions not
subjected to the capital gains (final) tax being submitted to the Chief,
Assessment Performance Control Division, BIR National Office Building,
Diliman, Quezon City.
9. Effective date. This Circular, which modifies Revenue Memorandum Circular No. 80-89, shall take effect on February 1, 1990.
All internal revenue officials and others concerned are hereby
enjoined to give this Revenue Memorandum Circular the widest publicity
possible.
Adopted: 16 Jan. 1990
(Sgd.) JOSE U. ONG
Commissioner of Internal Revenue