BIR Ruling [DA-198-99]

March 30, 1999 BIR RULING [DA-198-99] Correa, Candelaria and Associates Suite 405 Makati Stock Exchange Bldg. Ayala Avenue, Makati City Attention: Atty . F . P . Candelaria Gentlemen : This refers to your letter dated September 9, 1998 stating that "1. Spouses Eufemio Perez and Eufemia Perez mortgaged their properties consisting of agricultural land in favor of Quality Tobacco Corporation; "2. For failure to pay the mortgage debt, Quality Tobacco Corporation foreclosed the properties; "3. Eventually on August 14, 1991, an auction sale was conducted and mortgage was awarded the sale and corresponding Certificate of State was executed by the Sheriff and approved by the Executive Judge; "4. Three parcels of land covered by the Certificate of Sale with the corresponding Certificates of Title all of the Register of Deeds of Cabanatuan City were the subject of tenants' applications for acquisition thereof under the operation of CARP; "5. The government thru Agrarian Department, placed the properties under the CARP operation and awarded the same to the tenants; "6. The Land Bank of the Philippines, charged for the payment of the land-owner of the compensation for the properties, issued the corresponding bonds under CARP operation; "7. The original landowners, Spouses Eufemio and Eufemia Perez from whom the properties were transferred in favor of our client by virtue of the Certificate of Sale covering said properties to Quality Tobacco Corporation, should pay the corresponding Capital Gains and Documentary Stamps. Based on the foregoing, you are requesting for a ruling as to whether or not the bond issued by the Landbank of the Philippines covering the payment of agricultural land taken by the Government placing it under the operation of land transfer in accordance with the provisions of Republic Act No. 6657, is acceptable as payment for capital gains and documentary stamp taxes. In reply, please be informed that under Section 18 of R.A. 6657 otherwise known as An Act Instituting a Comprehensive Agrarian Reform Program to Promote Social Justice and industrialization, Providing the Mechanism for its Implementation; And for Other Purposes , LBP bonds may be used by the landowner, his successors in interest or his assigns, up to the amount of their face value, for any of the following; "1) . . . "2) . . . "3) . . . "4) . . . "5) Payment for various taxes and fees to the government: Provided, that the use of these bonds for these purposes will be limited to a certain percentage of the outstanding balance of the financial instruments; provided, further, that the Presidential Agrarian Reform Council (PARC) shall determine the percentage mentioned above; "6) . . . "7) . . . Under Sec. 2 of the Joint BIR-LBP Regulations implementing Sec. 18(4)(b)(v) of R.A. 6657, the subject 10-year LBP bonds may be used in the payment of the following internal revenue tax liabilities, except withholding tax for non-withholding or non-remittance of taxes withheld: a) Income Taxes Individual and Corporate b) Final Capital Gains Tax Due from Individual Taxpayers c) Estate Tax d) Donor's Tax e) Value-Added Tax (VAT) f) Excise Tax g) Other Percentage Taxes In view thereof, the subject 10-year LBP bonds can be used by the landowner, his successors in interest or his assigns, in this case, by the Spouses Eufemio and Eufemia Perez, in the payment of their capital gains tax liabilities, but should only be limited to 10% percent of the outstanding balance of the LBP bonds as determined by the Presidential Agrarian Reform Council pursuant to the above-quoted Sec . 18 of R . A . No . 6657 , as implemented by the Joint BIR-LBP Regulations dated February 12, 1992. (BIR Ruling No. 056-96 dated May 15, 1996) The request, however, for the application of the subject LBP bonds in the payment of documentary stamp tax in the amount of P21,865.00 is hereby denied for lack of legal basis considering that documentary stamp tax is not one of the taxes enumerated under the aforestated Sec. 2 of the Joint BIR-LBP Regulations. 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. LLjur Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue