BIR Ruling [DA-274-96]

July 25, 1996 BIR RULING [DA-274-96] Mr. Genaro V. Catalan 52 Rizal Street, Poblacion Los Baos, Laguna S i r : This refers to your letter dated July 19, 1995 which was endorsed to this Office by the Revenue District Officer. Revenue District No. 54, Trece Martires City on August 21, 1995 requesting a ruling as to whether or not you, as the creditor mortgagee and the purchaser of a mortgaged property in an extra judicial foreclosure sale are subject to capital gains tax. cdtech In reply thereto, please be informed that properties foreclosed by private individuals are subject to capital gains tax. The 5% capital gains tax is imposed on "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 condition sales by individuals, including estates and trusts (Section 21 (e), Tax Code, as amended by Executive Order No. 37) The capital gains tax due on such foreclosure sale shall be based on the bid price in the auction sale. The tax should be paid after said foreclosure sale but before the registration of the certificate of sale issued by the auctioneer conducting the foreclosure sale. BIR Clearance is required before and said properties are transferred in your name, pursuant to Section 50(e)(4) of the Tax Code, as amended by Executive Order No. 37 reading as follows: "No registration of any document transferring real properties shall be effected by the Register of Deeds unless the Commissioner of Internal Revenue or his duly authorized representative has certified that such transfer has been reported and the tax herein imposed, if any, has been paid." (BIR Ruling No. 010-87 dated January 14, 1987) Moreover, the Sheriffs Deed of Sale is subject to documentary stamp tax based on the consideration or value received or paid for the real properties i.e., the bid price as stated on said Deed pursuant to Section 209 of the Tax Code, as amended. (BIR Ruling No. 057-87 dated February 23, 1987) cdta Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service