Mr. Francisco C. Palacio

March 19, 2009 BIR RULING [DA-(I-010) 158-09] Mr. Francisco C. Palacio 52 Rosal Street, Araneta Village Potrero, Malabon City Sir : This refers to your letter dated May 7, 2008 which was referred to this Office by Revenue Region No. 5, Valenzuela City, by way of its 1st Indorsement dated May 20, 2008, requesting that the amount of Fifty Thousand Pesos (P50,000.00) which was mistakenly paid for under Republic Act (R.A.) No. 9480, otherwise known as the Tax Amnesty Program, be applied or credited against the payment of capital gains tax due relative to the foreclosure sale of a parcel of land by Rural Bank of Bocaue, Inc. (Rural Bank), as Vendor, in your favor, as the Vendee. It is represented that the Rural Bank is the highest bidder in a foreclosure sale conducted on January 20, 1999 and became the lawful owner of a parcel of land located at Sitio Pila, Barangay Catmon, Sta. Maria, Bulacan covered by TCT No. T-140346(M) issued by the Registry of Deeds for Meycauayan, Bulacan, previously owned by Spouses Juan Cadiz and Norma Cadiz; that a Certificate of Sale was executed in favor of Rural Bank and the same together with other supporting documents were filed and registered with the Registry of Deeds for the Province of Bulacan on January 21, 1999 under Entry No. 406608; that the period of redemption has effectively expired and substantively vesting full title over the property in favor of Rural Bank; that under Section 30 of R.A. No. 7653, the designated liquidator shall convert the assets of Rural Bank to money, or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such institution; that you have negotiated with the Rural Bank for the purchase of the property including the improvements thereon and Rural Bank, as the Vendor, agreed to sell the same to you, as the Vendee, for and in consideration of P185,000.00; that on February 4, 2002, a Deed of Absolute Sale was executed by the Rural Bank in your favor with the condition that you, as the Vendee, shall assume payment of the capital gains tax/creditable withholding tax including documentary stamp tax; and that on March 4, 2008, you have availed of the Tax Amnesty and paid the amount of P50,000.00 as evidenced by validated BIR Form No. 0617 or Tax Amnesty Payment Form. In reply thereto, please be informed that Revenue Memorandum Circular No. 69-2007, amplifying Republic Act (R.A.) No. 9480, provides that the only instance when sale of real property may be covered by the tax amnesty program is when the real property has already been transferred and/or declared in the name of the buyer and the capital gains tax has already been paid but during the time of transfer there was underdeclaration in the selling price/consideration or undervaluation made in the declaration of such property. (see Q-48, RMC No. 69-2007) CDcaSA Since the capital gains tax due on the foreclosure sale has not been paid and there was no allegation of underdeclaration or undervaluation of consideration of the said sale, the vendor was not qualified to avail the tax amnesty. On the issue of offsetting, the Supreme Court in Philex Mining Corporation vs. Commissioner of Internal Revenue, Court of Appeals, and The Court of Tax Appeals (G.R. No. 125704 dated August 28, 1998) citing the cases of Francia v. Intermediate Appellate Court (162 SCRA 753) and Caltex Philippines v. Commission on Audit (208 SCRA 726) ruled that ". . . taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity . . . " SUCH BEING THE CASE, your request for the offsetting of the amount of P50,000.00 from the capital gains tax due on the foreclosure sale receivable by the Bureau of Internal Revenue (BIR) cannot be granted for lack of legal basis. Moreover, you are hereby requested to pay the creditable withholding tax due on the said foreclosure sale pursuant to Revenue Regulations No. 2-98, as amended. However, you are entitled to claim for a refund of the amount of P50,000.00, representing the tax amnesty mistakenly paid pursuant to R.A. No. 9480, within a period of two (2) years from the date of payment as prescribed in Section 229 of the Tax Code of 1997 with the Appellate Division of the BIR. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service