BIR Ruling [DA-479-04]

September 10, 2004 BIR RULING [DA-479-04] RR 4-99; RA 8791 #177-99 Rodriguez Rural Bank, Inc. Cor. A. Luna & Concepcion Sts. Plaza Rizal, San Joaquin Pasig City Attention: Mr. Manolo O. Velasquez Head-Branch Banking and Mr. Manulet C. Miranda Internal Auditor Gentlemen : This refers to your letter dated April 26, 2004 requesting for confirmation of your opinion that the payment of capital gains and documentary stamp taxes shall be due only after the expiration of the one (1) year redemption period pursuant to Revenue Regulations No. 4-99. It appears from the documents submitted that Jose M. Zaldarriaga married to Delia R Zaldarriaga are the registered owners ("OWNERS-MORTGAGORS") of a parcel of land covered by TCT No. 85656; that on July 15, 1994, a Real Estate Mortgage over the said parcel of land was executed by OWNERS-MORTGAGORS in favor of Rodriguez Rural Bank, Inc. ("MORTGAGEE") to secure the payment of the principal sum of P1,407,552.68; that the said parcel of land was foreclosed by the MORTGAGEE and a subsequent foreclosure sale was conducted on June 26, 1995 wherein the MORTGAGEE was the highest bidder; and that the Certificate of Sale was registered on August 27, 2002 in the Registry of Deeds for Quezon City. In reply, please be informed that in an extra-judicial foreclosure sale effected pursuant to R.A. 8791, in relation to Act No. 3135, as amended by Act No. 4118, and Revenue Regulations No. 4-99 where the mortgagee is a bank, quasi-bank, or trust entity, the mortgagor, other than a juridical entity, or his successor-in-interest has one year from the registration of the certificate of sale within which to redeem the property. In the case of individuals whose property is sold pursuant to an extra-judicial foreclosure sale, the period of redemption shall be within one year from the date of registration of the certificate of foreclosure sale with the applicable Register of Deeds. No transfer of title to the highest bidder can be effected until and after the lapse of the redemption period. Thus, only a brief memorandum shall be annotated at the back of the certificate of title, and the certificate of title of the mortgagor shall not be cancelled until after the lapse of the redemption period. The foregoing notwithstanding, the owners of properties that have been sold in an extra-judicial foreclosure sale initiated by banks, quasi-banks and trust entities prior to the effectivity of R.A. 8791 shall retain their redemption rights, that is, one-year redemption period, until their expiration. In case of non-redemption, the foreclosure sale shall be subject to capital gains tax under Sections 24(D)(1) or 27(D)(5) of the Tax Code of 1997 for capital asset or to the creditable withholding tax on the foreclosure sale of ordinary assets imposed under Revenue Regulations No. 2-98, as amended, and shall become due based on the bid price of the highest bidder, ( BIR Ruling No. 36-2000 dated September 11, 2000 ) but only upon the expiration of the one year period of redemption provided for under Section 6 of Act No. 3135, as amended by Act 4118, and shall be paid within ten (10) days following the end of the month after expiration of the redemption period, provided, however, that taxes withheld in December shall be remitted on or before January 15 of the following year. ( Revenue Regulations No. 6-2001 dated July 31, 2001 ). On the other hand, the capital gains tax due on foreclosure sale shall be paid within thirty (30) days from the lapse of the one-year redemption period and shall be based on the highest bid price in accordance with RMO 41-91. ( BIR Ruling No. DA-059-2004 dated February 10, 2004 ) Likewise, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting, or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines. Whenever one party to the taxable document enjoys exemption from the tax, however, the other party thereto who is not exempt shall be the one directly liable for the tax. The tax return prescribed under Section 200 of the Tax Code of 1997 shall be filed within five (5) days after the close of the month following the lapse of the one-year redemption period, and the tax due thereon shall be paid based on the bid price at the same time the aforesaid return is filed. ( Revenue Regulations No. 6-2001 dated July 31, 2001 and BIR Ruling No. DA-059-2004 dated February 10, 2004 ) In view of the foregoing, this Office confirms your opinion that the payment of the capital gains or expanded withholding and documentary stamp taxes shall be due only after the expiration of the redemption period as provided in R.A. 8791 in relation to Act 3135, as amended, and Revenue Regulations No. 4-99 where the mortgagor is an individual. ECDaAc 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group