MANILA, Philippines - Nora Bitong and her family through their legal counsel Harriet Demetriou made a clarification yesterday regarding the criminal charges filed against their company Virkar Realty Corp. by the Bureau of Internal Revenue (BIR) for allegedly evading payment of their corporate income tax and value added tax for the sale of a 927-square meter commercial property in 2008.
According to Demetriou, Virkar Realty Corp. is an inactive corporation and had no business income from 1999 to present, except in the year 2008 when it decided to sell its investment property consisting of an idle parcel of land located at Jupiter St., corner Canopus St., BelAir Village, Makati City, in order to extinguish the loan on the property with Rizal Commercial Banking Corp. (RCBC). The land has an area of 927 square meters which was sold for P55.62 million at P60,000 per square meter. “But RCBC believed that the zonal value of the property is P118,500 per square meter, so it remitted to the BIR a creditable withholding tax (CWT) of six percent based on the total zonal value of P109.85 million which is higher than the selling price of P55.62 million. The documentary stamp tax (DST) on conveyance of real property at the rate of P15 for every P1,000 or fraction thereof, was also based on the zonal value. The total withholding tax and DST remitted, which passed the scrutiny by Revenue District Office No. 49 of BIR Makati before issuing the Certificate Authorizing Registration (CAR), is P6.59 million and P1.648 million, respectively,” Demetriou said.
According to Demetriou, there was even an overpayment of CWT and DST.
“The zonal value of the property sold at the time of sale is only P24,000 per square meter and not P118,500 per square meter and the BIR knows this. But why did the BIR seem not to see this when its Revenue Officers examines the taxpayer’s compliance as condition for the issuance of the CAR? Or is it because that the BIR had conveniently developed the attitude of informing the taxpayer if there is under-payment but chooses to keep silent if there is an over-payment? Is taxation no longer a “symbiotic relationship” between government and taxpayer because, as the case against my clients would demonstrate, is now being resorted to as an arbitrary method of exaction by those in the seat of power,” Demetriou asked.
Demetriou also said the gain realized from the sale was properly reflected in Virkar’s 2008 income tax return (ITR). “However, upon advice of its external auditor that the property sold is a capital asset, the gain from sale was treated as a reconciling item and considered it to have been subjected to the final capital gains tax considering that the rate of tax paid (as matter of fact over-paid as earlier intimated) of six percent, is equal to the rate of final capital gains tax. That the property sold is a capital asset is an honest belief; which belief is supported by an earlier ruling issued by the BIR to another realty company (BIR Ruling No. DA-270-04 dated May 17, 2004). Our understanding is that a real property, which is not for sale or for lease in the course of trade or business nor it is used in the business of the taxpayer, is a capital asset within the meaning of the statute. Hence, the sale of an idle land should only be subject to capital gains tax and not to the regular corporate income tax. We also believe, based on our simple understanding of the law, that the capital gains tax is incompatible with the imposition of the value-added tax, that’s why Virkar did not pay any VAT,” Demetriou explained.
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