BIR Ruling [DA-528-99]

September 13, 1999 BIR RULING [DA-528-99] Atty. Ma. Zenaida M. Garcia Blk. 16, Lot 4 New Capitol Estate I, Diliman Quezon City M a d a m : This refers to your letter dated July 27, 1999 requesting clarification on what taxes are payable and what documents are necessary to secure a clearance preparatory to the annotation of a real estate mortgage on a transfer certificate of title. LexLib In reply, please be informed that a real estate mortgage is defined as a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated. [De Leon, Hector; Comments and Cases on Credit Transactions; 1995 ed.] The effect of a mortgage is merely to constitute a lien upon property. [McCullough vs. Velosa and Serna; 46 Phil 1] Implicit from the foregoing is the fact that in a contract of real estate mortgage no conveyance or transfer of real property takes place between the debtor-mortgagor and the creditor-mortgagee. As such, it is not subject to capital gains tax under Section 24(D)(1) of the 1997 Tax Code which is imposed only on the capital gains presumed to have been realized from the sale, exchange, or other disposition of real property. Neither is the transaction subject to estate tax under Section 84 of the same Code since said tax is imposed on the transmission by a deceased person of his estate to his lawful heirs or beneficiaries. LibLex A real estate mortgage contract is, however, subject to the documentary stamp tax imposed under Section 195 of the 1997 Tax Code, at the following rates: a) When the amount secured does not exceed five thousand pesos (P5,000.00), twenty pesos (P20.00); b) On each five thousand pesos (P5,000.00) or fractional part thereof in excess of five thousand pesos (P5,000.00), an additional tax of ten pesos (P10.00). Where only one instrument was prepared, made, signed and executed to cover a loan agreement/promissory note and a mortgage, the documentary stamp tax prescribed above shall be paid and computed on the full amount of the loan or credit granted. In this regard, the instrument shall be treated as covering only one taxable transaction, subject to the higher documentary stamp tax. [Section 8, Revenue Regulations 9-94] In addition, the notarial acknowledgment to the mortgage deed is subject to the documentary stamp tax of fifteen pesos (15.00) pursuant to Section 188 of the Tax Code of 1997. Finally, under Section 200 of the same Code, a person liable to documentary stamp tax shall, within ten (10) days after the close of the month when the taxable document was made, signed, issued, accepted or transferred, file a return together with a copy of the deed of mortgage (loan agreement or promissory note, if applicable) and pay the tax with the Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. prcd We hope we have satisfactorily answered your queries. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group