In pursuit of taxes: BIR sights real estate practitioners

TOP OF MIND By Carissa Ann M. Eñano (The Philippine Star) | Updated July 30, 2013 -
The real estate industry is one of the fastest growing businesses in the country today. One only needs to take a quick stroll around the city to see the new buildings sprouting aplenty amidst several other commercial and residential developments. As a consequence of this growth, agricultural lands are converted into commercial and industrial lots. Indeed, the Philippines appears to be in the midst of a real estate boom. Thus, it is no wonder that the Bureau of Internal Revenue would like to have a slice of the pie, so to speak and collect the proper taxes that may result in the additional income which is a logical consequence of this boom. This is certainly underscored by issuance of the BIR of Revenue Regulations No. 10-2013 (RR 10-13).
Under the BIR regulation, starting June 1, 2013, real estate practitioners are now included as among those professionals falling under Section 2.57.2(A)(1) of RR 2-98, as amended by RR 30-2003. This means that Real Estate Service Practitioners (RESPs), consisting of consultants, appraisers, assessors, brokers and salespersons which are duly-registered and licensed pursuant to Republic Act No. 9646 or known as the “Real Estate Service Act of the Philippines” shall be subject to a creditable withholding tax of 15 percent, if the gross income for the current year exceeds P720,000; and 10 percent, if otherwise.  In order to determine the applicable tax rate, the real estate practitioner shall periodically disclose his gross income for the current year to the BIR by submitting a sworn declaration.
The issuance of the regulation does not mean that real estate practitioners were not subject to withholding tax on income payments before. Prior to RR 10-13, Section 2.57.2 (A) (1) of Revenue Regulation No. 2-98 already has a catch-all phrase – that “…and all professions requiring government licensure examinations and/or regulated by the Professional Regulations Commission (PRC), Supreme Court, etc.”.  Thus, when Republic Act No. 9646 took effect, all licensed real estate practitioners fell squarely on the mentioned provision.
An interesting point, however, lies in Section 3 of RR 10-2013. The said provision states that “Section 2.57.2(G) of RR 2-98, as last amended by RR 14-02, is hereby further amended to read as follows:
Section 2.57.2. – Income payments subject to creditable withholding tax and rates prescribed thereon. – xxx
(G) Income payments to certain brokers and agents. – On gross commissions or service fees of customs, insurance, stock, immigration and commercial brokers, fess of professional entertainers and Real Estate Service Practitioners (RESPS) (i.e. real estate consultants, real estate appraisers and real estate brokers) who failed or did not take up the licensure examination given by and not registered with the Real Estate Service under the Professional Regulations Commission. – 10 percent.”
It appears that the BIR may have sought to clarify what may appear to be an ambiguous provision of Section 2.57.2 (G) where the term “real estate” brokers and agents were not qualified, because Section 2.57.2 (A) (1) covers only  real estate practitioners that have been duly-licensed.
Based on the above, even if the real estate practitioner is not licensed or may have failed the licensure examination, the transaction would still be subject to withholding tax.  This is consistent with the principle that all income is taxable, unless subject to exemption under the law; even income derived from illegal means.
However, one can see what may appear to be an unintentional consequence of the regulations. Note that under these regulations an unlicensed real estate practitioner who earns gross income of more than seven hundred twenty thousand (P720,000) pesos for the current year shall be taxed at only 10 percent as  compared to a licensed real estate practitioner who shall be subject to a higher rate of fifteen percent. In effect, if this ambiguity is left unaddressed, it may discourage real estate practitioners from aspiring to be licensed real estate practitioners in a growing industry that calls for regulation.  The Declaration of Policy of RA 9646 (RESA Law) affirmed the State’s commitment “to develop and nurture through proper and effective regulation and supervision a corps of technically competent, responsible and respected professional real estate practitioners whose standards of practice and service shall be globally competitive…xxx.”  Real estate practitioners play an essential role in nation building.  Their part in the social, political, and economic development of our country is significant because of their sizeable contribution in government income resulting from their real estate transactions.
Nevertheless, the prime consideration of these regulations is essentially the proper collection of taxes.  The Bureau of Internal Revenue is aware of the common practice that any person, even if not duly-licensed under the law could still engage in real estate service.  Thus, to avoid any traces of doubt or uncertainty, the Bureau of Internal Revenue issued these regulations.
Carissa Ann M. Eñano is a supervisor from the tax group of Manabat Sanagutin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com

Double Taxation under the Local City Tax Ordinance of City of Manila


For full text of decision
please click on the link below

G.R. No. 181277. July 3, 2013
Swedish Match Philippines Inc. Vs. The Treasurer of the City of Manila

BIR RMC No. 49-2013 : Effect of Death on SPA issued for Assignment of Real Properties


Rescission of a contract to buy and sell: Uncovering tax implications

Posted on July 03, 2013 10:43:11 PM [ BusinessWorld Online ]
Taxwise Or Otherwise
Ma. Teresa Ledesma
RELATIONSHIPS and agreements may at times end on a sour note. And more often, when nothing more can be done, parties have no better option but to release each other from their obligations, pick up the pieces, and look forward to move on with anticipation at restoring the status quo.
Legally, the right to rescind or to nullify the agreement is an available remedy to the injured party. The wronged party is entitled to apply with the court for a decree of rescission. However, the right proceeds from a judicial pronouncement, and not from the parties’ prerogative to walk-away from the obligation. To enforce the rescission against the whole world, a binding court decision must be secured.
Such is the case of two corporations that entered into a contract to buy and sell real properties. For failure of one of the parties to comply with its undertakings, a judicial decree to declare the contract void (or rescission of contract) was secured by the wronged party. Both parties were directed by the court to return whatever they had received from each other, with one party returning the purchase price, and the other party reconveying the titles over the real properties.
Ordinarily, restoration would have meant a mere handing over of wares. In a twist, title and ownership over the disputed lands had already been transferred to the buyer. And consequently, to return the disputed lands to the seller, a Certificate Authorizing Registration (CAR) must be obtained from the Bureau of Internal Revenue for the cancellation of titles over the lands and retransfer of the registration to the seller. For the CAR to be issued, the corresponding taxes, i.e. capital gains tax and documentary stamp tax, must be paid or a tax exemption ruling must be obtained.
The gnawing question is whether the reconveyance of the parcels of land should be exempt from the payment of capital gains tax (CGT) and documentary stamp tax (DST).
In the affirmative, the BIR favorably granted exemption from payment of CGT and DST over the reconveyance of the real properties in favor of the seller. The BIR’s position is underpinned by the principle that rescission of a contract is tantamount to declaring a contract void from its inception, as if no contract existed between the parties. In effect, rescission of a contract would not give rise to a taxable event. This principle is supported by the argument that first, no income is realized from a sale or exchange that has been declared void, and second, the return of the property is not for monetary consideration, but merely an acknowledgment of the title or ownership of the original owner of the property.
However, the BIR went a step further to clarify the issue on payment of DST, and this is where the fine line of distinction is drawn. DST is levied on the exercise of certain privileges, regardless of the legal status of the transactions that gave rise to it -- that is, irrespective of whether the contract was declared void or unenforceable. The operative impact of the DST is that it is levied upon the issuance of the specific instrument or document, and not on the legal transaction or agreement evidenced by the document. Thus, DST previously paid on the initial transfer of title is no longer refundable by the BIR, a judicial rescission of the Contract to Buy and Sell notwithstanding.
Perhaps a good lesson that can be culled from this common tale of relations gone wrong would be for the aggrieved party not to forget to seek the recovery of whatever taxes and costs that it had to pay to the BIR in carrying out the original transfer of the property to the defaulting buyer. This way the aggrieved party is fully restored to its former status.
After all, life is full of uncertainties. The least that we can do is to plan ahead, strategize our backup plans, and identify our exit mechanisms to avoid falling into economic traps and to cushion potential detrimental effects.
The author is a director at the tax services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may send feedback to ma.teresa.t.ledesma@ph.pwc.com.

Revenue Regulations (RRs)
are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
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