BIR Ruling [DA-058-00]

February 1, 2000 BIR RULING [DA-058-00] RMO #27-89 133-96 Mr . Nicanor P . Larracas Rural Bank of Socorro (Or. Mindoro) Socorro, Oriental Mindoro S i r : This has reference to your letter dated September 8, 1999 stating that in your letter dated July 15, 1998, you inquired whether Revenue Memorandum Order (RMO) No. 27-89 is still operative; that it is stated in the said Order that the capital gains tax or transfer tax on extra-judicial foreclosure sale by rural banks under Act No. 3135 as amended by Act No. 4118 is payable only upon the expiration of the mortgagor's redemption period which in turn hinges upon the registration of the foreclosure sale; that the ruling is a great relief to rural banks which are presently handicapped by mounting past due agricultural production loans and consequent illiquidity; that under said ruling, rural banks can first proceed to register the sheriffs foreclosure sale without paying the tax, for the start-up of the redemption period; that rural bank/s can only be grateful to the BIR for its help; that they have not been given any credit but they are the only financial institutions that are catering to agricultural production loans in the rural areas; and that commercial banks have stopped in this lending since the start of the CARP in 1987, a factor that you think is most responsible for the short-fall in agricultural production. Based on the foregoing representations, you are now requesting re-activation of RMO No. 27-89 if it is no longer operative, otherwise, the confirmation of this Office for your guidance and that of the Revenue District Offices and the Register of Deeds. In reply, please be informed that RMO No. 27-89 dated April 18, 1989 took effect beginning April 18, 1989 when it amended RMO No. 16-88 dated April 18, 1988 and was rendered inoperative when said RMO was later on amended by RMO No. 6-92 dated January 15, 1992. However, with the issuance of Revenue Regulations (RR) No. 4-99, said RMO No. 27-89 has in substance been revived. Thus, under Section 3 and 4 of RR No. 4-99, it is provided viz: "SEC. 3. Capital Gains Tax "1) In case the mortgagor exercises his right of redemption within one year from the issuance of the Certificate of Sale, no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. A certification to that effect or the deed of redemption shall be filed with the Revenue District Office having jurisdiction over the place where the property is located which Certification or deed shall likewise be filed with the Register of Deeds and a brief memorandum thereof shall be made by the Register of Deeds on the Certificate of Title of the mortgagor. "2) In case of non-redemption, the capital gains tax on the foreclosure sale imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year period of redemption. "SEC. 4. Documentary Stamp Tax "1) In case the mortgagor exercises his right of redemption, the transaction shall only be subject to the P15.00 documentary stamp tax imposed under Sec. 188 of the Tax Code of 1997 because no land or realty was sold or transferred for a consideration. "2) In case of non-redemption, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting, or transferring the real property whenever the document is made, signed, issued, accepted, or transferred where the property is situated in the Philippines. Provided, that whenever one party to the 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 ten (10) 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 the bid price at the same time the aforesaid return is file." Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. EQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)