Request for Certification Authorizing Transfer of Title to Real Properties Acquired Through Dacion En Pago

July 23, 1986 BIR RULING NO. 123-86 34-h 063-85 123-86 Gentlemen : This refers to your letter dated May 19, 1986 requesting for certification authorizing transfer of title to real properties acquired by you through dacion en pago . It is represented that a certain Mrs. Paz Baens obtained two loans from the Union Bank of the Philippines (UBP) in the aggregate amount of P272,000.00 secured by two real estate mortgages on 3 parcels of land; that upon failure of the debtor-mortgagor to pay her aforementioned loans which has an outstanding balance of P339,784.45 as of February 28, 1985, she offered to settle the said obligation by way of dation in payment; and that on March 14, 1985, the debtor-mortgagor executed a deed of dacion en pago in your favor of the aforesaid 3 parcels of land in full payment of her loans. 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 and 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 No. 33-81 and 18-82 do not apply in this case. Moreover, Section 34(h) of the Tax Code, as amended, 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, Mrs. Paz Baens is required to pay the capital gains tax on the net gains realized from the transfer of her aforesaid property, taking into consideration the outstanding balance of her loan of P339,784.45 as the selling price to Union Bank before title thereto can be consolidated and issued in its name. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner