Registration of Foreclosure Sale in Favor of Banks, Insurance and Finance Companies, without Immediate Payment of CGT

April 25, 1985 BIR RULING NO. 063-85 34 (h) 000-00 063-85 S i r : Reference is made to your 1st Indorsement dated October 18, 1984 requesting information as to whether Revenue Memorandum Orders Nos. 33-81 and 18-82 apply to transfer of certain real property from debtor to creditor in payment of the former's indebtedness. cdt It appears that the spouses Januario M. Velozo and Ma. Natividad Doliro-Velozo of 16 Mahabagin Street, Teachers Village, Quezon City obtained from the Forte Merchant Finance, Inc., 5th Floor JEG Building, Legaspi Village, Makati, Metro Manila a credit accommodation in the sum of P100,000.00 per promissory note dated January 12, 1983; that the spouses defaulted in the payment of the said obligation; that in payment of said obligation, the spouses executed a "Dation in Payment" whereby they ceded, assigned, transferred and conveyed unto Forte Merchant Finance Inc., a parcel of land under Tax Declaration No. 02598, consisting of 466 square meters more or less situated at Barangay Banilad, City of Mandaue, Cebu, with a market value of P6,990.00 and 1,660 MERALCO shares of stock with a par value of P10.00 per share under Stock Certificate No. CPB 9487; that the above properties were not offered and/or pledged as collateral in the abovementioned transaction and no foreclosure proceedings had been instituted; and that Forte Merchant Finance, Inc. filed the capital gains tax return for Mr. Januario M. Velozo covering the aforementioned properties but no tax was paid. In reply, please be informed that pursuant to Revenue Memorandum Orders Nos. 33-81 and 18-82, the Bureau of Internal Revenue shall allow the registration of the foreclosure sale ultimately, the consolidation and issuance of title in favor of banks, insurance and finance companies, without the immediate payment of the capital gains tax on the foreclosed real property given as collateral in a real estate mortgage, in accordance with the procedure prescribed by said Revenue Memorandum Orders. Since there are no foreclosure sale and foreclosed real property, Revenue Memorandum Orders Nos. 33-81 and 18-82 do not apply in this case. Moreover, Section 34(h) of the Tax Code as amended by Batas Pambansa Blg. 37 provides that every individual, who is a citizen of the Philippines, deriving net capital gains from sale or other disposition of real property shall pay a final capital gains tax. In view of the foregoing, this office is of the opinion as it hereby holds that transfer of property through "Dation in Payment" is subject to the final capital gains tax prescribed by Section 34(h) of the Tax Code as amended by Batas Pambansa Blg. 37, and therefore, the spouses Januario M. Velozo and Ma. Natividad Doliro-Velozo are required to pay the capital gains tax on the net gain realized from the transfer of their aforesaid property, taking into consideration the amount of the loan of P100,000.00 as the selling price to Forte Merchant Finance, Inc. before title thereto can be consolidated and issued in its name. cdta Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner