BIR Ruling [DA-440-06]

July 19, 2006 BIR RULING [DA-440-06] 27 (D) (5) & 196; 036-2000 Mrs. Rosalinda P. San Gil 10 McDivitt St., Doa Faustina Village Culiat, Quezon City M a d a m : This refers to your letter dated October 12, 2005 stating that you are the purchaser of a delinquent taxpayer's real estate at an auction sale conducted by the Provincial Treasurer of the Province of Rizal, and accordingly, you were issued the corresponding Deed of Conveyance/Final Deed of Sale on September 21, 2005 due to the failure of the delinquent taxpayer to redeem the property within the reglementary period of one year from the date of the registration of the sale which was on August 11, 2004. Based on the foregoing, you are requesting for a ruling that the capital gains tax on the auction sale shall be based on the highest bid price as stated in the Deed of Conveyance (Final Deed of Sale). Further, in your letter dated November 10, 2005, you are in effect requesting that the imposition of surcharge and penalty for late payment be waived due to the difference in the interpretation as to the correct basis to be used for purposes of computing the capital gains tax. In reply, please be informed that since the sale of the realty of the delinquent taxpayer, in the instant case, is the enforcement by the Province of Rizal of its tax lien for unpaid real estate taxes and is being conducted through public bidding or a public auction sale this Office is of the opinion as it hereby holds that the tax base in computing the capital gains tax on such sale transaction should, as in the case of mortgage foreclosure sale under Act 3135, as amended, be likewise the highest bid price. (BIR Ruling No. 036-2000 dated September 11, 2000 citing Revenue Memorandum Order No. 41-91) Hence, the capital gains tax due on the above sale of realty in your favor through public auction should be computed based on the highest bid price as stated in the Deed of Conveyance (Final Deed of Sale). Moreover, the documentary stamp tax due thereon should, likewise, be computed based on the highest bid price. On the other hand, since there is delay in the payment of the taxes imposed in the above transaction, although it is claimed that the cause thereof was due to the difference in the interpretation as to the correct basis to be used for purposes of computing the said taxes, still the corresponding surcharge, penalty and interest for late payment are hereby imposed. The issue pertaining to the tax base to be used in computing the capital gains tax, likewise, the documentary stamp tax imposed on public auction sale has long been settled. It has been the BIR's standing policy that in case of a foreclosure sale which is akin to the above public auction sale, the taxes imposed shall be based on the bid price. (Revenue Memorandum Circular No. 41-91 and Revenue Regulations No. 4-99) TAIaHE 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service