Delgado and Leyson Law Office

November 27, 2008 BIR RULING [DA-(I-040) 468-08] Section 204, 248, 249; 461-07 Delgado and Leyson Law Office Philumber Bldg., Pabayo-Gomez Sts. Cagayan de Oro City Attention: Atty. Emmanuel M. Delgado Partner Gentlemen : This refers to your undated letter requesting in behalf of your client, Mr. Francisco M. Guico Jr., for a ruling as to the correct tax base for purposes of computing the capital gains/expanded withholding tax and documentary stamps tax on the purchase by your client of parcels of land through public auction. AIDcTE It is represented that Mr. Guico bought from Metrobank through public auction parcels of land located at Lots 14541 L-1 and 14541-F, Barangay Cacasandig, Cagayan de Oro City, under TCT Nos. T-157304 and T-157305; and that Mr. Guico acquired titles to the properties as the highest bidder in the public auction sale conducted under Act No. 3135, as amended by Act No. 4118, in satisfaction of legal, valid and then existing obligations of the Metrobank's predecessor/s-in-interest. In reply, please be informed that Revenue Memorandum Order No. 41-91 reads in part: "In all cases involving sale, exchange, or any disposition of real property, the tax base for documentary stamp tax purposes shall be the same as the tax base used in the computation of the capital gains tax which means, gross selling price, fair market value, or zonal value of the real property, whichever is higher, except in the following instances, where actual consideration appearing in the Deed of Sale shall be an acceptable tax base in the computation of not only the capital gains tax but also of the documentary stamp tax, viz. : 1. . . . xxx xxx xxx 3. Sale of real property affected through public bidding, e.g. , judicial sale; extrajudicial foreclosure sale, where both the 5% capital gains tax and the documentary stamp tax were computed based on the highest or winning bid price. (BIR Ruling Nos. 101-89; 118-91) xxx xxx xxx" Moreover in BIR Ruling DA-461-07, dated August 21, 2007, this Office held that: "(P)ursuant 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 trust, 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. " (emphasis supplied) In view thereof, this Office is of the opinion, as it hereby holds that the basis for computing the capital gains tax/expanded withholding tax on the sale through public auction between Mr. Guico and Metrobank of two parcels of land is the total selling price or the highest bid price. Moreover, the 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 as null and void. DCTHaS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service