BIR Ruling [DA-004-05]

January 11, 2005 BIR RULING [DA-004-05] 27 (D) (5); 196; 249; RR 4-99; 177-99; DA-114-2001; DA-329-2003 Business Assistance Credit Corporation ( BAGCO CREDIT ) Suite 7A, GMA (Lou-Bel) Plaza, #7514 Bagtikan Street cor. Chino Roces St., San Antonio Village, Makati City Attention: Mr. Erdulfo S. Sison President Gentlemen : This refers to your letter addressed to the Regional Director, Revenue Region No. 4, San Fernando, Pampanga dated April 2, 2002 requesting for a ruling on whether the imposition of surcharge, interest and penalties on the payment of capital gains and documentary stamp taxes one (1) year after the expiration of the redemption period in foreclosure sale is proper. SIDEaA It is represented that Business Assistance Credit Corporation ("BAGCO CREDIT") is the highest bidder in an extra-judicial auction sale; that the final deed of sale was issued to BAGCO on March 1, 2002 or almost one year after the expiration of the redemption period which is March 10, 2001; that upon the issuance of the final deed of sale, BAGCO paid the corresponding capital gains and documentary stamp taxes thereto; and that the BIR in Olongapo City assessed BAGCO for late payment. cTEICD In reply, please be informed that in BIR Ruling No. 177-99 dated November 17, 1999, this Office has already occasioned to rule that: "(1) In extrajudicial foreclosure of mortgage under Act 3135, as amended, the mortgagor has the right to redeem the property within one year from the date of sale. The date of sale has been construed to mean the date of registration of the certificate of sale in the Registry of Deeds . ( Santos vs. Register of Deeds of Manila , L-26752, March 19, 1971; Reyes vs. Tolentino et al ., L-29142, November 29, 1971) In the case of foreclosure of mortgage by banks, finance and insurance companies whether judicial or extrajudicial, the mortgagor has the right of legal redemption of one year from registration of the certificate of sale . ( Quimson vs. PNB , L-24920, November 24, 1970) Thus, the counting of the period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act 3135, as amended, as well as judicial or extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of the registration of the certificate of sale in the Registry of Deeds ." (Emphasis supplied.) In case of non-redemption, the foreclosure sale shall be subject to capital gains tax under Sections 24(D)(1) or 27(D)(5) of the Tax Code of 1997 for capital asset or to the creditable withholding tax on the foreclosure sale of ordinary assets imposed under Revenue Regulations No. 2-98, as amended, based on whichever is higher of the consideration (bid price), the fair market value, or the zonal value. The capital gains tax is due within 30 days from the expiration of the redemption period whereby the expanded withholding tax shall be paid within ten (10) days following the end of the month after expiration of the applicable redemption period , provided, however, that taxes withheld in December shall be remitted on or before January 15 of the following year. ( Revenue Regulations No. 6-2001, as amended, dated July 31, 2001 ) Thus, the one-year redemption period will start from the date of registration of the certificate of sale with the Registry of Deeds and not from the issuance of the sheriff's certificate of sale because it is only then that the certificate of sale takes effect as a conveyance. Accordingly, the capital gains tax shall be paid within thirty (30) days from the expiration of the said one-year redemption period which is thirty days from March 10, 2001. Likewise, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting, or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines. Whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. The tax return prescribed under the Code shall be filed within five (5) days after the close of the month following the lapse of the one-year redemption period , and the tax due under Section 196 of the Tax Code of 1997 shall be paid based on whichever is the higher value pursuant to the said Section 196, at the same time the return is filed. Furthermore, in case of non-redemption of the foreclosed real property by the mortgagor, a Tax Clearance Certificate (TCL)/Certificate Authorizing Registration (CAR) in favor of the purchaser shall only be issued upon presentation of the capital gains tax or creditable withholding tax and documentary stamp tax returns duly validated by an authorized agent bank (AAB) evidencing full payment of the capital gains tax or creditable withholding tax and documentary stamp tax due imposed under Section 196 of the 1997 Tax Code. The foregoing being considered, this Office is of the opinion that BAGCO is liable to the payment of surcharge, penalties and interest as assessed by the BIR in Olongapo City. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group