BIR Ruling [DA-142-00]

March 10, 2000 BIR RULING [DA-142-00] Tuscany Resources, Inc . 777 Nueve de Febrero Street Mandaluyong City Attention: Mr . Bayani D . Legaspi Gentlemen : This refers to your letter dated June 22, 1999 stating that at the public auction held on August 12, 1997, a parcel of land together with the improvements thereon covered by TCT No. 4828 issued by the Registry of Deeds for Paraaque City was sold to BPI-Family Savings Bank, Inc. (BPI), as the highest bidder and subsequently a Sheriff's Certificate of Sale dated August 22, 1997 was issued by Sheriff, Benedicto G. Hebron and duly annotated on the said title bearing entry no. 3313 dated June 8, 1998 to which the capital gains tax and documentary stamp tax in the respective amounts of P60,769.16 and P30,384.56 or a total amount of P91,153.75 and P18,240.00 were respectively paid by BPI as evidenced by Capital Gains Tax Returns and Documentary Stamp Tax Return; that on May 18, 1998, a Certificate Authorizing Registration No. CAE199700001538 was issued in the name of BPI; that within the one year period of redemption, Tuscany Resources, Inc. represented by its President, Themistocles R. Raguero II with Spouses Themistocles R. Raguero and Lourdes Raguero (Mortgagors) offered to pay BPI the amount of P1,685,692.26 representing the purchase price at public auction together with all the accrued interest and charges paid by the latter; that on June 16, 1999, a Certificate of Redemption was issued by BPI and restored to mortgagors their full ownership of the above-mentioned parcel of land; and that on June 17, 1999, a Deed of Sale was executed by and between Tuscany Resources, Inc. and Perleen Nichole Hoover Panaligan, represented by her guardian Katleen Hoover Acosta whereby the former transferred to the latter the above-mentioned parcel of land together with the improvements thereon for and in consideration of P1,200,000.00. Based on the foregoing, you now request for a ruling that the amounts of P91,153.74 and P18,240.00 representing the capital gains tax and documentary stamp tax, respectively paid by BPI due on mortgage foreclosure sale can be applied/credited to the subsequent sale between Tuscany Resources, Inc. and Perleen Nichole Hoover Panaligan. In reply, please be informed that your request cannot be granted for lack of legal basis. Section 24(D)(1) of the Tax Code of 1997 provides that capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates, and trusts shall be subject to final tax of 6% based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the said Code. In relation to the above, Section 2.2 of Revenue Memorandum Order No. 6-92 amending Revenue Memorandum Order No. 29-86 dated September 3, 1986, as amended by Revenue Memorandum Order No. 16-88 dated April 18, 1988 and as further amended by Revenue Memorandum Order No. 27-89 dated April 18, 1989 relative to the payment of capital gains tax on extra-judicial foreclosure sale initiated by banks, finance and insurance companies, provides: "Sec. 2.2 The tax applies not only to ordinary sale transaction but also to pacto de retro sales and other forms of conditional sales, which necessarily includes mortgage foreclosure sales (judicial and extra-judicial foreclosure sales)" It is clear from the foregoing that the final tax of 6% applies even to conditional sales which necessarily includes extra-judicial foreclosure sales. Since the sale in this case took place on August 12, 1997 or prior to the effectivity of Revenue Regulations No. 4-99 which took effect on April 5, 1999, it is Revenue Memorandum Order No. 6-92 that should be made applicable. Accordingly, the tax herein became due and payable on August 22, 1997, the date of the issuance of the certificate of sale by the sheriff, since the said certificate is an evidence of the perfection of a contract or a sale. (BIR Ruling No. 050-96 dated April 11, 1996) Consequently, the exercise of right of redemption within the one year period by Tuscany Resources, Inc. is immaterial. The mortgage foreclosure sale is one thing and the right of redemption is definitely another thing. Corollarily, the subsequent sale between Tuscany Resources, Inc. and Ms. Perleen Nichole Hoover Panaligan involving the above-mentioned property is subject to capital gains tax/creditable withholding tax and documentary stamp tax based on the gross selling price or fair market value determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)