BIR Ruling [DA-079-02]

April 29, 2002 BIR RULING [DA-079-02] 27 (D) (5); 22 (Z) 096-98 Atty. Leonardo N. Salazar No. 88, Assistant St., GSIS Village, Project 8, Quezon City S i r : This refers to your letter dated June 8, 2001 requesting for an exemption from the payment of capital gains tax as a buyer of an acquired asset of a closed bank from the latter's statutory liquidator. The facts as you represented are as follows: 1. On September 30, 1988, Mr. Renan V. Santos, quondam Central Bank Liquidator of Island Savings Bank, executed in your favor a Deed of Absolute Sale over a parcel of land, consisting of 23.9989 hectares, more or less, and covered by TCT No. 36952, situated at Brgy. Santor, Municipality of Delfin Albano, Province of Isabela. 2. Immediately thereafter, you caused to register the said Deed of Absolute Sale with the Register of Deeds of Ilagan, Isabela so that the title to the property could be transferred in your name. However, you were advised by the Register of Deeds to secure a clearance from the Provincial Agrarian Reform Office (PARO) in Cauayan, Isabela who refused to grant the same on the ground that the property in question is already covered by the Comprehensive Agrarian Reform Law. 3. On December 21, 1995, you voluntarily offered to sell your property to the government in support of its Agrarian Reform Program. 4. On April 25, 1996, you were able to secure from the PARO, the Certificate of Clearance to enable you to register the property in your name. Upon presentation of said Clearance, the Register of Deeds required you to secure a Certificate Authorizing Registration (CAR) from the BIR. ScCEIA 5. The BIR would not issue the CAR unless the corresponding capital gains tax on the property is paid. You argued that it was not incumbent upon you as the buyer to make such payment. As a matter of course, the seller, which is the Central Bank of the Phil. or the PDIC in its capacity as Liquidator, unless otherwise stipulated, is the one legally bound to pay the capital gains tax due on the transaction. In reply, please be informed that in cases of sale, exchange or disposition of lands and/or buildings owned by a corporation, which are not actually used in its business and are treated as capital assets , a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the said transactions, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the 1997 Tax Code, whichever is higher, of such lands and/or buildings. [Section 27(D)(5), 1997 Tax Code). However, when the lands and/or buildings subject of sale, exchange or disposition are actually used in the business of a corporation and are classified as ordinary assets , the transaction is subject to ordinary income, and not capital gains tax, which includes any gain from the sale or exchange of property which is not a capital asset as defined in Section 39(A)(1) of the same Code. [Section 22(Z), 1997 Tax Code] It is clear from the foregoing provisions, that in cases of sale, exchange or disposition of lands and/or buildings by a corporation classified as capital assets/ordinary assets, the burden of paying the 6% capital gains tax/creditable withholding tax is on the seller/transferor because the latter is the one who realized the capital gains/ordinary income subject to tax, unless there is a stipulation to the contrary. In the instant case, the Central Bank of the Philippines or Philippine Deposit Insurance Corporation as liquidator/seller, is the one directly liable to pay the corresponding taxes due on the sale transaction in question. Accordingly, this Office cannot issue a Tax Clearance Certificate unless it is shown that the corresponding tax has been paid. In addition, Section 7 of the DAR Administrative Order No. 01, Series of 2000, provides that "all taxes, penalties, fines, registration fees and other impositions required to be paid by the mortgagor and mortgagee before title can be registered in the name of the Republic of the Philippines shall be deducted from the proceeds of the land transfer claim . . ." Moreover, pursuant to Section 58(E) of the 1997 Tax Code, no registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported and the capital gains or creditable withholding tax, if any, has been paid. cCAIDS Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group