Hon. Casimiro M. Ynares, Jr.

August 21, 2007 BIR RULING [DA-461-07] 24 (D) (1); 196; 4-99; 41-91; 484-2003 Hon. Casimiro M. Ynares, Jr. Governor Province of Rizal Pasig City S i r : This refers to your letter dated February 18, 2005 addressed to the Bureau of Local Government Finance and referred by the latter to this Office in a letter dated January 17, 2006, relative to your request for clarification as to whether or not sale at public auction of tax-delinquent real properties is exempt from the capital gains tax and documentary stamp tax. In reply, please be informed that pursuant to Section 24 (D) (1) of the Tax Code of 1997, capital gains presumed to have been realized from sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. This rule also applies to sales effected through public auction. In other words, the sale of tax-delinquent real properties effected through public bidding or auction, and as a consequence of the enforcement by the Province of Rizal through the Office of the Governor of its tax lien for the unpaid real estate taxes against the said properties, is subject to the capital gains tax. However, the basis for computing the capital gains tax on such sale transaction shall be the total selling price or the highest bid price pursuant to Section 3 (2) of Revenue Regulations No. 4-99 since public auction sale is similar to a mortgage foreclosure sale. The Province of Rizal, as the statutory seller, representing the owners of the tax-delinquent real properties, is liable to pay the capital gains tax due on such auction sale. However, it may get reimbursement or recovery of the capital gains tax payment from the said owners. Moreover, the Final Deed of Sale issued in favor of the buyer/purchaser is subject to the documentary stamp tax under Section 196 of the Tax Code of 1997, based on the consideration or value received or paid for the land i.e., the bid price as stated on said Deeds pursuant to RMO No. 41-91 and Revenue Regulations No. 4-99. (BIR Ruling No. DA-484-2003 dated December 10, 2003) 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. IDaCcS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service