Proper Basis of Certificate Authorizing Registration (CAR) is the Amount Stated in Contract to Sell

January 11, 2002 BIR RULING NO. 004-02 39 000-00 Pangasiwaan sa Patalaan ng Lupain (Land Registration Authority) East Avenue cor. NIA Road Quezon City Attention: Mr. Rhandolfo B. Amansec Chief Inspection & Investigation Division Gentlemen : This refers to your letter dated February 16, 1999 relative to the investigation being conducted by your Office on the alleged anomalous/fraudulent issuance of Certificate Authorizing Registration (CAR) No. 1073134 dated April 28, 1997 issued in the name of Eugenio C. Delica by the Las Pias-Muntinlupa Revenue District Office which was presented to the Register of Deeds of Makati City; that as per certification of said office, the said CAR was based on the Contract to Sell dated April 16, 1985 presented to the Examiner and not on the Zonal/Assessed Value nor the Fair Market Value of the properties at the time the taxes due were paid. HDaACI Based on the foregoing, you now request for any circular/memorandum issued by this Office or any law that governs the issuance of a CAR and if it was proper and legal for the Examiner to base the CAR on the amount stated in the Contract to Sell which is much lower than the prevailing market value of the properties or the assessed/zonal value of the properties involved. In reply, please be informed that pursuant to then Section 34(h) of the National Internal Revenue Code as amended by Batas Pambansa Blg. 47, net capital gains from the sale, or other disposition of real property by citizens of the Philippines or resident alien individual shall be subject to the final income tax rates prescribed as follows: NET CAPITAL GAINS Rates On the first P100,000 or less 10% On any amount over P100,000 20% such tax shall be in lieu of the tax imposed under Section 21 of the same Code. Pursuant to Section 4 of Revenue Regulations No. 8-79 implementing Section 34 (h) of the National Internal Revenue Code as amended by Batas Pambansa Blg. 47, the basis for determining net capital gains tax are: "(i) The schedule of final capital gains tax prescribed in Section 34(h) of the Tax Code shall be based on net capital gains. For purposes of these Regulations the term "net capital gains" means the capital gain from the sale or other disposition of real property which is equal to the excess of the amount realized over the adjusted basis of the property, undiminished by any capital loss sustained from other capital asset transaction. "(ii) The amount realized from the sale or other disposition of real property shall be any money received plus the fair market value of the property (other than money) received, reduced by commissions and other selling expenses. Interest included in installment payments shall not form part of the amount realized but shall be treated as ordinary income under Section 29 and taxable under Section 21 of the Tax Code. "(iii) The basis for determining the gain shall be the basis as determined in accordance with Section 35 of the National Internal Revenue Code and adjusted for additional capital investment, depreciation, amortization, depletion and other recovery of capital by the taxpayer. "(iv) The entire amount of the capital gain shall be subject to the final schedular tax without taking into account the period or duration during which the real property was held by the seller from the date it was acquired up to the date of its sale or disposition." On the other hand, installment sales of real property is governed by the following: "(i) Election to pay the capital gains tax in installment . An individual who sells real property under deferred payment sale and is otherwise qualified to report the gains on installment basis may elect to pay the capital gains tax in accordance with the formula prescribed in subparagraph (b)(2) of this Section. For purposes of these Regulations an individual is otherwise qualified to account for his gain on installment basis if the initial payment does not exceed 25% of the selling price. The term "initial payment" means the payment which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the taxable year of sale or disposition." Furthermore, Revenue Regulations No. 9-84 amending Sections 5(c) and 7(a) of Revenue Regulations No. 8-79 then prevailing at the time of the transaction provides that the seller or buyer or both may apply for issuance of a certification by the Commissioner or by the Revenue District Officer (hereinafter referred to as the "authorized revenue officer") having jurisdiction over the place where the real property sold or disposed of is located, for the following reasons: HDTCSI "(1) The capital gains tax as declared in the return is fully paid. "(2) Portions of the capital gains tax due or payable up to the time of certification are actually paid in cases where the taxpayer elected to pay the tax in installment. "(3) The capital gains tax is exempt under Section 35 of the National Internal Revenue Code or under any other law. "(4) The capital gains tax is not required to be paid because the (i) the real property sold is used in the seller's trade or business (ii) the real property was held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business (e.g., the seller is engaged in the business of buying and selling real property) (iii) the real property was offered for rent "(5) The seller elects to report the capital gain under Section 21, in relation to paragraph (a), (b), (c) and (d) of Section 34 of the Tax Code, where the property was sold to the government or any of its political subdivisions or agencies or to a government-owned or controlled corporation. "(6) The capital asset transaction resulted in a loss." Please note of the absence of the word zonal value. Such is the case then since zonal value was not one of the factors in the determination of capital gains tax. The Technical Committee which was created to study and prepare the zonal schedules of fair market values of real properties to be used as basis for the computations of any internal revenue tax was created only under Ministry Order No. 20-86 dated September 5, 1986 after the execution of the Contract to Sell on April 16, 1985. ESCacI Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue