Tax Liability by a Buyer of Foreclosed Property on Installment Basis

April 29, 1991 BIR RULING NO. 073-91 50 (b) 052-90 073-91 S i r : This refers to your letter dated August 20, 1990 stating that you bought on installment basis a foreclosed property from the Development Bank of the Philippines (DBP), Cotabato City; that you started paying for the property by giving the required down payment on March 17, 1988 and finally paid the full amount on October 18, 1989; that after having fully paid the said property, you are now working for the transfer of title to said property in your name; that DBP, Cotabato City, is however, requiring you to pay for the withholding tax on said sale transaction; and that the contract price of the property is P205,000.00. Based on the foregoing representation, you now request a ruling as to whether or not the said sale is subject to withholding tax; and in the affirmative, who is required to pay the said tax. In reply, please be informed that under Revenue Memorandum Circular No. 7-90 dated January 16, 1990 clarifying some pertinent provisions of Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 prescribing the withholding of creditable income tax on sale, exchange or transfer of real property implementing Section 50 (b) of the Tax Code, as amended, the obligation of the payor to deduct and withhold arises at the time the consideration is paid or payable (par. 4, RMC No. 7-90). In the case of installment sales, only such amount paid beginning on January, 1990 shall be subject to withholding in consonance with the rule that regulations shall apply prospectively. Thus, installment payment made prior to 1990 shall not be subject to withholding. Accordingly, in the instant case, since the last installment was already paid on October 18, 1989 or prior to January, 1990 and the Deed of Sale which is intended merely to evidence transfer of an already paid up real property, has yet to be executed, the withholding requirement under Revenue Regulations No. 12-89, as amended by Revenue Regulations No. 1-90 will not apply (BIR Ruling No. 052-90). Such being the case, the sale in your favor by DBP Cotabato of its foreclosed property on installment basis is not subject to the creditable withholding tax provided in Revenue Regulations No. 12-89, as amended by Revenue Regulations No. 1-90. cdta However, the Deed of Absolute Sale to be executed on said sale shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended based on the amount appearing on the said deed to be executed. This ruling shall serve as an authority for the Revenue District Officer concerned to issue the Certificate Authorizing Registration (CAR) on said sale without the payment of the creditable withholding tax by the payor, Mr. Pendatum B. Alim. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner