Taxability of Repossession of Buses Previously Sold on Installment for Failure of Mortgagor to Settle Account

April 20, 1992 BIR RULING NO. 131-92 50 (b) 000-00 131-92 Columbian Motors Corporation No. 16 West Service Road, South Superhighway Bicutan, Paraaque, Metro Manila Attention: Dr . C . O . Alba, Jr . Credit & Collection Department Gentlemen : This refers to your letter dated December 20, 1991 stating that you recently obtained possession of five (5) units of Nissan Diesel buses sold on installment in view of the failure of the mortgagor to settle in a prompt manner; that the Land Transportation Office of Vigan, Ilocos Sur where the buses have been registered is hesitant in transferring title on the buses in your name pending receipt of a BIR clearance stipulating that there exist no need to collect the expanded withholding tax on the repossessed buses. In reply, please be informed that Question and Answer No. 24 of the Primer on Creditable Withholding Tax on sales, exchanges or transfers of motor vehicles reads as follows: "Q24. Y corporation sold a brand-new car to "B" on installments at the following terms: 20% down payment and 80% payable in 24 months. To secure the payment of the balance, "B" executed a mortgage in favor of Y corporation. After paying for six months, "B" defaulted for three months in the payment of his installments. So Y corporation declared the unit forfeited and repossessed it. It had the car repaired and sold the unit, thereafter to "C". Is there Expanded Withholding Tax to be withheld upon repossession and sale of the motor vehicle? "A24. Upon repossession of the vehicle, the corporation is not required to withhold any tax thereon, but upon its subsequent sale by Y corporation, the buyer "C" must deduct the 2% expanded withholding tax based on gross selling price. Sale of repossessed motor vehicles by franchised dealers shall be considered as sale of second hand vehicles subject to 2% withholding tax." Such being the case, your having obtained possession of five (5) units of Nissan Diesel buses you previously sold on installment is not subject to the creditable expanded withholding tax imposed by Revenue Regulations No. 8-90 as amended by Revenue Regulations No. 2-91 implementing Section 50 (b) of the Tax Code, as amended being merely a repossession of such vehicles in view of the failure of the buyer-mortgagor to settle his account with your company relative to such vehicle. However, the subsequent sale of such vehicle would render you liable to the 2% expanded withholding tax under Revenue Regulations No. 8-90 as amended by Revenue Regulations No. 2-91 based on the gross selling price since in such case the sale of repossessed motor vehicles by franchised dealers shall be considered as sale of second hand vehicles subject to the 2% creditable expanded withholding tax. (Question & Answer No. 24, Primer on Creditable Withholding Tax on Sales, Exchanges as transfer of motor vehicles.) Very truly yours, JOSE U. ONG Commissioner of Internal Revenue