How is the real estate sold by SPAV to clients classified? Are they ordinary or capital assets? What is the legal basis or BIR revenue regulation that can support whether it is ordinary or capital asset?

I bought a property from an SPAV & the BIR insists that the seller must pay capital gains tax from the transaction instead of the creditable withholding tax (CWT)? Is the BIR correct?

I am studying tax right now and I am really interested in knowing and imparting my opinion regarding your question. However, I am really not familiar with SPAVs. Can you elaborate on its nature further?

SPAV stands for Special Asset Purpose Vehicle. A SPAV is a company that buys the foreclosed properties of banks and resells them to clients. When they sell to clients, is the sale subject to capital gains or CWT?

I believe that the sale should not be subjected to Capital Gains Tax. SPAV being engaged in the real estate business presupposes that all real estate they hold for sale are ordinary assets and therefore subject to creditable withholding tax.

I have not found any law classifying properties held by SPAVS to be capital assets.

Here is a quote from the BIR site:

"Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer to be considered as habitually engaged in the sale of real estate.

If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer, he/it may nevertheless be deemed to be engaged in the real estate business through the establishment of substantial relevant evidence (such as consummation during the preceding year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as habitually engaged in real estate business with the Local Government Unit or the Bureau of Internal Revenue, etc.)"

Here is a the link. It is worth the read:
www.bir.gov.ph/taxinfo/tax_capgin.htm

I have found RA 9182, otherwise known as "Special Purpose Vehicle Law". Is this applicable?

lawlessman, we have the same view - the transaction should be subject to CWT not CGT. This is also the opinion of the BIR's Legal Dept. But lo and behold, the RDO here in mandaue cebu does not agree with their Legal Dept and is elevating the matter to the Commissioner. The RDO insists that it should be subject to CGT.

Hence, left with no choice, i had to pay additional 3% to complete the 6% CGT under protest. I did this because the BIR would not release the CAR. I will just have to wait for the ruling of the Commissioner.

Thanks anyway.