Sec. 2.33 of RR No. 3-98, as amended by RR No.

10-2000 and further amended by

RR No. 98
RR No. 98 (tax treatment of the sale, transfer, or exchange of real property)
- The seller will file CGT Return within 30 days following each s/d of real property
- Payment of CGT = will be made to Authorized Agent Bank (AAB)
o Located within the Revenue District Office (RDO) having jurisdiction (where the
property is located)
- Creditable withholding taxes deducted & withheld by the agent/buyer classified as
ordinary = will be paid by the agent/buyer upon filing of the Return
o Payment = within 10 days following the end of the month in which the
transaction occurred
o Taxes withheld in December = will be filed on or before Jan. 25 of the following
year
RR No. 10-98 (Imposition of income taxes on income derived under Foreign
Currency Deposit & Offshore Banking Systems)
- Income interest income received by a RC or RA= subject to final withholding tax of
7.5%
- Depository Bank = will withhold & remit the tax
- Bank account is jointly in the name of NRC:
o 50% of the interest income exempt
o 50% subject to final withholding tax of 7.5%
- Applicable income derived beginning Jan. 1, 1998
- If deposit is made in 1997 = only that portion of interest received starting Jan. 1,
1998 is taxable
RR No. 13-99 (Regulation for the exemption of a RC or RA from payment of 6%CGT on the S/D of his principal residence)
- Requisites (to be exempted):
o Submit required docs + Sworn Declaration of his intent to avail of the tax
exemption to the RDO
o Within 30 days from D/S
o Proceeds must be fully utilized in acquiring/constructing the new principal
residence within 18 months from D/S
If the entire proceeds is not utilized = CGT will be computed based on the
formula specified in the Regulations
If fails to utilize the proceeds in full or in part within the 18-month
reglementary period = his right of exemption will not arise on the extent
of the unutilized amount
Effect: tax due will immediately become due and demandable on
the 31st day after S/D
- Principal residence in exchange for a condo unit = not subject to tax so long as the
condo unit will be used as his new principal residence
RR No. 14-2000 (S/D by a natural person of his principal residence)
- Residential address shown in the latest ITR filed preceding the date of sale of the real
property = conclusive presumption true residential address in accord. w/ the
doctrine of admission against interest or principle of estoppel

o Certification of the Brgy. Chairman or Bldg. Administration in case of condo

unit
Sellers compliance w/ the prelim conditions for exemption from the 6% CGT =
sufficient basis for the RDO to approve & issue Certificate Authorizing Registration
(CAR)or Tax Clearance Certificate (TCC) of the principal residence s/d
CAR/TCC shall state: s/d of TPs principal residence is exempt from CGT, but subject to
compliance w/ the post-reporting requirements imposed

RR No. 18-2001 (Guidelines in the Proper Monitoring of the Basis of Properties

Transferred, and Shares Received, Pursuant to a Tax-free Exchange under Sec,
40, C, 2, and to Establish the Policies Governing the Imposition of Fees for the
Monitoring thereof)
Sec. 2
A. Substituted Basis of Stock/Securities Received by the Transferor
- Substituted basis of the stock/securities received by the transferor on a tax-free shall
be:
o Original basis of the property, stock or securities to be transferred
o LESS:
(a) money received, if any, AND
(b) FMV of other property received, if any
o PLUS:
(a) amount treated as dividend of SH, if any, AND
(b) amount of any gain that was recognized on the exchange, if any
- Boot money received and other property received in excess of the stock or
securities received by the transferor on a tax-free exchange
o Property received as boot shall have as basis its FMV
- If the transferee of property assumes, as part of the consideration, a liability of the
transferor, such acquisition = shall (for purposes of computing the substituted basis)
be treated as money received by the transferor on the exchange
- If the transferor receives several kinds of stocks/securities = Commissioner is
authorized to allocate the basis among the several classes of stocks/securities
B. Substituted Basis of the Transferred Property in the Hands of the Transferee:
- (a) orig basis in the hands of the transferor
- (b) PLUS: amount of the gain recognized to the transferor on the transfer
C. Original Basis of Property to be Transferee:
(a) cost of them property (if acquired purchase on or after March 1, 1913)
(b)FMV or value as of the moment of death of the decedent (if acquired by inheritance)
(c) Basis in the hands of the donor or the last preceding owner by whom the property
was not acquired by gift (if property was acquired by donation)
- If the basis is greater than the FMV of the property at the time of donation =
basis shall be such FMV
(d)amount paid by the transferee (if acquired for less than an adequate consideration)
(e) adjusted basis of (a) to (d) above if the acquisition cost of the property is increased
by the amount of improvements that add to the value of the property or appreciably
prolong its life less accumulated depreciation
(f) substituted basis if the property was acquired in previous free exchange under Sec.
40(C)(2)

D. Basis Determining Gain or Loss on a Subsequent S/D of Property Subject of

the Tax-Free Exchange
- substituted basis defined in:
o Sec. 40(C)(5)
o Sec. 2.A and 2.B above
Sec.3: Submission of Information on the Basis of Properties docs to be submitted
in applying for confirmation that the transaction is indeed a tax-free exchange:
(a) Sworn certs on the basis of the property to be transferred pursuant to such exchange
- Basis must be itemized (for annotation)
- Executed by the transferor himself (if juridical entity official w/ a rank)
(b)CTC - Transfer Certificates of Title and/or Condo Certificates of Title of Real Properties
(c) CTC latest Tax Declaration of the real properties to be transferred
- If the tax declaration was issued 3 or more years prior to the exchange
transaction = transferor shall include in the cert by the LGUs Assessor that
such tax declaration is the latest
(d)CTC cert of stocks evidencing shares of stock
(e) CTC inventory of other property/ies
Sec. 4: Information to be Contained in the Certification/Ruling by the BIR
- confirming that an exchange of property for shares complies w/ the provisions
- shall include a statement on the substituted basis of the property transferred
Sec. 5: Conditions for the Issuance of Certificate Authorizing Registration (CAR)
or Tax Clearance (TCL)
- shall be issued by the RDO
- be issued in triplicate by the Commissioner
- shall indicate that the transaction involved is a tax-free exchange
Sec. 6: Information to be annotated in the Transfer Cert of Title or Condo Cert of
Title issued by the RD and on the Cert of Stock/Units of Participation issued by
the Corporate Secretary
- Persons responsible for making the said annotation:
o RD w/ respect to the Transfer of Title
o Corp. Secretary or equivalent of the investee corp/partnership, whose
shares/units are transferred by the Transferor to the transferee/surviving
/consolidated corp
o Corp. Secretary of transferee/surviving /consolidated corp
- Annotation shall be made on the reverse side of the TC
Sec. 7: Submission of Proof of Annotation of Substituted Basis
- no cert/ruling issued by BIR shall be valid unless parties submit to the BIR copies of
the new TC duly certified by the RD or the Corp. Secretary within 90 days from receipt
of the cert/ruling confirming that the transaction complies w/ the law
Sec. 8: Information to be included in the Final Adjustment Return and in the
Audited Financial Statements accompanying the Final Adjustment Return;
Records to be maintained by the Parties:
1. Copy of the request for ruling filed with BIR (stamped)
2. Statement that they hold such assets/shares acquired in a tax- free exchange and the
year in which such exchange occurred

3. Parties to the transaction shall maintain permanent records of the transaction

Sec. 9: Fees to be paid by the Applicant processing fee of P5000 for not more than
10 properties. (additional of P100 for every Transfer of Cert in excess of 10)
RR No. 7-2003: Guidelines in Determining Whether a Real Property is a Capital or
Ordinary Asset
- Capital Asset (CA) - real properties held by a taxpayer, whether or not connected with
his trade or business, and which are not included among the real properties
considered as ordinary assets under Sec. 39(A)(1)
- Ordinary Asset (OA) - all real properties specifically excluded from the definition of
capital assets under Sec. 39(A)(1)
Stock in trade or other which would properly be included in the inventory
RP held by TP primarily for sale to customers
RP used in T/B subject to the allowance for depreciation
RP used in T/B of the TP
-

Guidelines:
o TP engaged in the Real Estate Business - the ff real properties shall be classified
as OA:
RP acquired by RE DEALER
RP acquired by RE DEVELOPER (developed or undeveloped)
RP acquired by RE LESSOR (land or improvements)
RP acquired in the course of T/B by a TP habitually engaged in the sale of
RE
o TP NOT engaged in the Real Estate Business:
RP used or being used or have been previously used in the T/B of TP =
considered as OA
BUT, RP used by an EXEMPT corp in its exempt operations shall not be
considered used for business purposes so considered as CA
Depreciable asses does not lose its character as an OA even if it becomes
fully depreciated
Monetary consideration not significant in the characterization of the
property
o TP changing business from RE business to NON-RE business
Shall not result in the re-classification of RP held from OA to CA
o TP originally registered to be engaged in the RE business but failed to
subsequently operate
All RP originally acquired by it shall continue to be treated as OA
o Treatment of abandoned and idle RP
Formerly forming part of the stock in trade or being used in t/b, and later
on abandoned & became idle
Shall continue to be treated as OA
Properties classified as OA for being used in business other an real estate
= automatically converted into CA
Upon showing a proof that the same have not been used in business
for more than 2 yrs prior to the consummation of the taxable
transaction

o Treatment of RP that have been transferred to a buyer/transferee through

SBEIDD
RP classified as CA or OA in the hands of the seller/transferor may change
in the hands of the buyer/transferor
Classification of such property in the hands of the buyer/transferor shall be
determined in accord w/ the ff rules:
i.
Transferred to an heir/donee not engaged in RE = CA
ii.
Received as dividend by SH not engaged in RE = CA, even if the corp
who declared such is engaged in RE
iii.
Received in exchange = OA (not engaged to engaged)
o Treatment of RP subject to involuntary transfer
No effect on the classification
Applicable Taxes on S/D of Real Property
o IC, RA, NRA engaged in T/B in PH
Classified as CA
6% CGT
based on gross selling price or CFMV, whichever is higher
if the buyer is govt = tax liability shall be computed on the basis of
6% CGT or the graduated tax rates under Sec. 24 (sellers option)
Classified as OA
Subject to creditable withholding tax
Based on gross selling price or CFMV, whichever is higher
Ordinary income tax under Sec. 24
o NRA not engaged in T/B in PH
6% CGT
based on gross selling price or CFMV, whichever is higher
o Domestic Corps
Classified as CA
6% CGT
based on gross selling price or CFMV, whichever is higher
Classified as OA
Subject to creditable withholding tax
Ordinary income tax under Sec. 27 (E)
May become subject to minimum corporate income tax (MCIT)
o Resident Foreign Corps
Subject to creditable withholding tax
Ordnary income tax under Sec. 28 (A)(1)
o Non-Resident Foreign Corps
Subject to final withholding tax = 32%
o Income on Sale of RP NOT LOCATED in PH
By RC or domestic corp
Regardless of classification
Income tax imposed in Sec. 24(A)(1) or Sec. 27(A) or (E)
Exempt: NRC, AI, foreign corps

RR No. 05-2008: De Minimis Benefits

- De Minimis - benefits which are exempt from FBT, limited to facilities or privileges
furnished or offered by an ER to his EE that are relatively small value and are offered

or furnished by the ER merely as a means of promoting health, goodwill,

contentment, or efficiency of his EE
Not subject to Fringe Benefits Tax
Not subject to Income Tax
Not subject to Withholding Tax on compensation income of both managerial and rank
& file EE
Includes:
o Rice subsidy of P1,500 or 1 sack of 50 kg. rice per month (value = not more
than P1,500)
o Uniform & clothing allowance (value = not more than P4,000)
Apply to income earned stating the year 2008

RR No. 06-2008: (separate sheet)

RMC No. 41-2009:
- BIR Ruling: Cypress Semiconductor PH HQ, Ltd.
o Certain positions of Filipino personnel of multinational companies qualify as
managerial and/or technical positions = entitled to 15% preferential tax under
Sec. 25(C)
o REVOKED inconsistent w/ the provisions of this Circular
- PH Alliance Corp v. Laguesma
o Managerial EE vested w/ powers or prerogatives to lay down and execute
mgt. policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign
or discipline ee
o Test of managerial status- depends on whether a person possesses authority
to act in the interest of his ER and if such authority is not merely
routinary/clerical in nature, but requires use of independent judgment
o Person having recommendatory powers = not a managerial EE
o only execute approved & established policies = not a managerial EE
o Elements to be a Managerial EE:
- Primary duty consists of performance of work directly related to mgt.
policies
- Customarily & regularly exercise discretion & independent judgment in
the performance of his functions
- Regularly and directly assists in the mgt. of the establishment
- Does not devite 20% of his time to work other than those above
prescribed
o Technical Position highly technical in nature or where there are no Filipinos
who are competent, able and willing to perform the services for which the
aliens are desired
o ONLY FILIPINO employed & occupying managerial & highly technical positions,
similar to the positions of the aliens, employed by regional or area HQs and
regional operating HQs of multinational companies = shall be ENTITLED TO THE
OPTION TO BE TAXED at either:
15% of the gross income, OR
regular Income Tax rate in accord w/ Sec. 25(C)