Payment of Rural Banks of the Capital Gains Tax in the Consolidation of Assets Acquired Through Foreclosure Sales

March 18, 1987 BIR RULING NO. 077-87 24 159-86 077-87 Gentlemen : This refers to your letter dated September 12, 1986 requesting a ruling as to whether rural banks are required to pay the capital gains tax in the consolidation of assets acquired by them through foreclosure sales. In reply, I have the honor to inform you that your query is answered in the affirmative. Although, as a result of the mortgage transaction, the mortgagor-seller derived the net capital gain subject to tax, on the premise that the amount representing the capital gains tax forms part or is tacked with the real property which is already under the control and custody, of rural banks as mortgagee-transferee, said banks shall pay the 5% capital gains tax based on the selling price as shown in the mortgage foreclosure sales . If the fair market value of the real property exceeds the selling price, the rural bank shall pay the tax based on the selling price while the tax based on the excess shall be levied directly against the mortgagor-transferor. The tax paid by the rural bank shall be considered paid for and in behalf of the mortgagor-transferor.(Revenue Memorandum Order No. 29-86) Such being the case, the liability of the rural bank to pay the tax subsists regardless of its tax status, i.e., exemption from income tax for a period of five (5) years from the effectivity of P.D. No. 2026 on February 3, 1986 because its net assets does not exceed P30 Million and the withdrawal of said exemption by Executive Order No. 93 dated December 17, 1986 effective upon the promulgation of the rules and regulations implementing said Executive Order. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner