BIR Ruling [DA-258-04]

May 17, 2004 BIR RULING [DA-258-04] Honorable Renato P. Dragon Special Assistant Presidential Liaison Officer for Political Affairs Office of the President of the Philippines S i r : This refers to your letter dated June 11, 2002, requesting for the opinion of this Office on the effect of non-payment of tax on the deed of sale executed by Villa Development in favor of your constituent and political ally Mr. Arturo Delos Reyes. It is represented that Mr. Delos Reyes bought a 12-hectare land from Villa Development. The land was bought by Villa Development from Ambrosia Realty without paying the corresponding taxes due to the government. Consequently, no title was issued to Villa Development but only to Mr. Delos Reyes. In reply, please be informed that the fact that the capital gains and documentary stamp taxes due on the sale of the 12-hectare land from Ambrosia Realty to Villa Development were not paid does not invalidate the sale. Similarly, the consequent sale of the same land from Villa Development to Arturo delos Reyes is not invalid due to non-payment of taxes. However, no transfer certificate of title should have been issued to Mr. Delos Reyes without payment of the capital gains or creditable withholding tax as the case may be and documentary stamp taxes due on the sale from Ambrosia Realty to Villa Development and from Villa Development to Mr. Delos Reyes pursuant to the provisions of Section 58(E) and 201 of the National Internal Revenue Code of 1997, to wit: "SEC. 58. Returns and Payment of Taxes Withheld at Source . xxx xxx xxx "(E) Registration with Register of Deeds. 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: Provided, however, That the information as may be required by rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, shall be annotated by the Register of Deeds in the Transfer Certificate of Title or Condominium Certificate of Title: Provided, further, That in cases of transfer of property to a corporation, pursuant to a merger, consolidation or reorganization, and where the law allows deferred recognition of income in accordance with Section 40, the information as may be required by rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, shall be annotated by the Register of Deeds at the back of the Transfer Certificate of title or Condominium Certificate of Title of the real property involved: Provided, finally, That any violation of this provision by the Register of Deeds shall be subject to penalties imposed under Section 269 of this Code. SEC. 201. Effect of Failure to Stamp Taxable Document . An instrument, document or paper which is required by law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps shall have been affixed thereto and cancelled. "No notary public or other officer authorized to administer oaths shall add his jurat or acknowledgment to any document subject to documentary stamp tax unless the proper documentary stamps are affixed thereto and cancelled." The capital gains or creditable withholding tax as the case may be and documentary stamp taxes, plus 25% surcharges and 20% interest per annum, due on the sale from Ambrosia Realty to Villa Development and the subsequent sale of the same property from Villa Development to Mr. Delos Reyes should be paid to the authorized agent bank in the Revenue District Office where the property is located. In case there is no authorized agent bank, the return should be filed and the tax due shall be paid with the Revenue District Officer, collection agent, or duly authorized Treasurer of the City or municipality where the property is located. Furthermore, the persons responsible for the transfer of the property from Ambrosia Realty to Villa Development and from Villa Development to Mr. Delos Reyes without payment of the taxes due thereon may be held liable to the penalties imposed under Section 255 and 256 of the Tax Code of 1997, to wit: "SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation . Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years. "Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed shall, upon conviction therefor, be punished by a fine of not less than Ten thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years. "SEC. 256. Penal Liability of Corporations . Any corporation, association or general co-partnership liable for any of the acts or omissions penalized under this Code, in addition to the penalties imposed herein upon the responsible corporate officers, partners, or employees, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000)." Please be guided accordingly. Respectfully yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service