BIR Ruling

March 20, 1973 Mr. Froilan C. Parias 82 Narig Street Quezon City S i r : This refers to your letter on Presidential Decree No. 23, proclaiming tax amnesty, and Revenue Regulations No. 7-72, as amended, implementing Presidential Decree No. 16 dated October 5, 1972, as amended, suspending the capital gains tax on certain conditions, posed as follows: "CASE I A person who have undeclared income abroad in the form of Cash, Real Properties, Stocks and other form of Investments how can this be treated under this Decree ? "CASE II A person who have undeclared income in the form of Cash, Real Properties, Stocks and other form of properties in the Philippines, how can this be treated under this Decree? "Capital Gain Exemption If a person sold his real property which is mortgaged and the portion of the proceed is to pay the obligation and the balance will be invested to the industries as enumerated by the Decree can this be allowed? In reply, I have the honor to inform you as follows: Under Case I, the undeclared income consisting of cash is considered hoarded. Hence, aside from declaring the same in the return and paying 10% thereof on or before March 31, 1973, said cash should be repatriated and deposited in a Philippine bank or invested in entrepreneur capital, additional capital contributions or in new issues of capital stocks in any of the preferred areas of productive undertaking or utilized in the purchase of new issues of government bonds, securities and debentures. If the undeclared income abroad consist of real and personal properties such as stocks or any form of investments, the taxpayer need only to file a return declaring therein the values of said properties and pay the 10% tax due thereon. Under Case II, the taxpayer need only file a return declaring the untaxed income and pay the 10% tax due thereon. As regards the capital gains exemption, when mortgaged property is sold and the seller pays off the mortgage obligation he is deemed to have the full value of the property as represented by the purchase price. Hence, capital gains may be realized on the transaction. However, only the portion of the gain derived from the transaction in proportion to the amount invested which bears to the total proceeds of the sale is exempt from the capital gains tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue