BIR Ruling No. 029-15

February 5, 2015 BIR RULING NO. 029-15 Sec. 24 (D) (1) Tax Code of 1997, as amended; 000-00 Brgy. 138 Homeowners Association, Inc. 19 Gen. Tirona St., Bagong Barrio Caloocan City Attention: Jose C. Alvarez President Gentlemen : This refers to your undated letter duly indorsed by the Housing and Urban Development Coordinating Council (HUDCC) requesting for an extension of three (3) years to settle the tax obligation, without penalties imposed thereon. Documents submitted show that BIR Ruling No. 086-2013 dated March 5, 2013 was issued to Jose C. Alvarez, President of BRGY. 138 HOMEOWNERS ASSOCIATION, INC. on the clarification of the taxes levied on the property acquired through public auction. The pertinent portion of the said ruling is quoted as follows: "In reply, Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997, as amended, provides: "SEC. 24. Income Tax Rates . xxx xxx xxx (D) Capital Gains from Sale of Real Property . (1) In General . The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: . . . ." xxx xxx xxx SEC. 27. Rates of Income tax on Domestic Corporations . xxx xxx xxx (D) Rates of Tax on Certain Passive Incomes . xxx xxx xxx (5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings . A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price of fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings." The subject sale effected through public auction, being a disposition of real property under Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997 enumerated above, is subject to the capital gains tax (CGT) of 6% on the capital gains presumed to have been realized from the said conveyance of real property considered as capital assets. It is likewise subject to documentary stamp taxes (DST) imposed under Sections 196 and 188 of the Tax Code of 1997. The CGT and DST are for the account of the seller. However, since public auction sale is similar to a mortgage foreclosure sale (BIR Ruling Nos. 036-00 dated September 11, 2000 and 224-11 dated July 12, 2011), the basis for computing the CGT and DST on such sale transaction shall be whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Section 6 (E) of the Tax Code of 1997, pursuant to Section 2 of Revenue Regulations No. 9-2012. Provided that when one of the contracting parties is the Government, the DST due thereon is computed based on the actual consideration stipulated in accordance with Section 196 of the Tax Code of 1997. In view of the foregoing, the CGT return should have been filed and the CGT paid within thirty (30) days from the expiration of the applicable statutory redemption period. On the other hand, the DST return shall be filed and the said tax paid within five (5) days after the close of the month after the lapse of the applicable statutory redemption period. (Section 2, Revenue Regulations No. 9-2012)" You now request for an extension of three (3) years to settle the tax obligation, without penalties imposed thereon. In reply, Section 2 of Revenue Regulations No. 9-2012, 1 provides: Section 2. Taxability of Owner's/Mortgagor's Failure to Redeem his Foreclosed/Auctioned Off Property/ies within the Applicable Statutory Redemption Period. In case of non-redemption of properties sold during involuntary sales, regardless of the type of proceedings and personality of mortgagees/selling persons or entities, the Capital Gains Tax (CGT) imposed under Sections 24(D)(1) and 27(D)(5) of the Tax Code, in relation to Section 57 of the Tax Code and RR 2-98, as amended, if the property is a capital asset; or the Creditable Withholding Tax (CWT) imposed under Section 57 and RR 2-98, as amended if the property is an ordinary asset; the Value-added Tax (VAT) imposed under Section 106 of the Tax Code and RR 16-2005, as amended; and the Documentary Stamp Tax (DST) imposed under Section 196 of the Tax Code shall become due. The buyer of the subject property, who is deemed to have withheld the CGT or CWT due from the sale, shall then file the CGT return and remit the said tax to the Bureau within thirty (30) days from the expiration of the applicable statutory redemption period; or file the CWT return and remit the said tax to the Bureau within ten (10) days following the end of the month after expiration of the applicable statutory redemption period, provided that, for taxes withheld in December, the CWT return shall be filed and the taxes remitted to Bureau on or before January 15 of the following year. If the property sold through involuntary sale is under the circumstances which warrant the imposition of VAT, the said tax must be paid to the Bureau by the VAT-registered owner/mortgagor on or before the 20th day or 25th day, whichever is applicable, of the month following the month when the right of redemption prescribes. The DST return shall be filed and the said tax paid to the Bureau within five (5) days after the close of the month after the lapse of the applicable statutory redemption period. The CGT/CWT/VAT and DST shall be based on whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Section 6(E) of the Tax Code. The foregoing provision clearly provides the dates when such taxes are due to be paid. There being no provision allowing the extension of period to file without payment of penalties, the herein request is denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Implementing Sections 24 (D) (1), 57, 106 and 196 of the National Internal Revenue Code of 1997 on non-redemption of properties sold during involuntary sales.