Whether the Land Bank of the Philippines is Liable to Pay Surcharge, Interest and Compromise Penalties on Capital Gains Tax Due

November 27, 1996 BIR RULING NO. 133-96 Land Bank of the Philippines Urdaneta Branch Urdaneta, Pangasinan Attention: Atty . Elmer R . Viloria Gentlemen : This refers to your letter dated August 15, 1996 stating that nine (9) parcels of real property located at Bugallon and Labrador, Pangasinan was acquired by the Land Bank of the Philippines, Urdaneta Branch, Urdaneta, Pangasinan by way of extra-judicial foreclosure sale on November 6, 1989; that the Certificate of Sale was registered with the Register of Deeds way back on December 28, 1989 without the bank being required to pay the capital gains tax; that no effort was made to immediately consolidate title and ownership over the said parcels of land upon the lapse of the period of redemption to allow the mortgagors ample opportunity to reacquire the same; that it was only on July 30, 1996 when the bank decided to pursue consolidation after the mortgagors failed to redeem the properties; that the Sheriffs Final Deed of Sale, was presented to the Revenue District Office of Alaminos, Pangasinan for the payment of capital gains tax; and that the Revenue District Office computed the capital gains tax due on the final Deed of Sale plus surcharge, interest, and compromise penalties. LLjur Based on the foregoing representations, you are now requesting for a ruling as to whether the bank is liable to pay surcharge, interest and compromise penalties on the capital gains tax due. In reply thereto, please be informed that pursuant to Section 21 (e) of the Tax Code as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Section 21 (e) of the Tax Code, as amended, is amplified by Section 2.2 of Revenue Memorandum Order No. 27-89 amending Revenue Memorandum Order No. 29-86 as amended by Revenue Memorandum Order No. 16-88 reading: "2.2. The tax applies not only to ordinary sale transaction but also to pacto de retro sales and other forms of conditional sales. This accordingly, includes mortgage foreclosure sales, except extra-judicial foreclosure sales under Act No. 3135, as amended by Act No. 4118 wherein the tax shall become due only upon the expiration of the one-year period of redemption provided for under Act No. 3135, as amended by Act No. 4118 ." As a general rule, regulations, circulars and other issuances implementing and amplifying the provisions of law or statute are of prospective applications. Accordingly, the provisions of Revenue Memorandum Order No. 27-89 dated April 18, 1989 amending Revenue Memorandum Order No. 29-86 dated September 3, 1986 as amended by Revenue Memorandum Order No. 16-88 dated April 18, 1988 shall apply to real property purchased by banks, finance and insurance companies through extra-judicial mortgage foreclosure sales on or after April 18, 1989 and since the extra-judicial mortgage foreclosure sale in this case took place on November 6, 1989, the certification authorizing the transfer of title to the aforesaid properties may be issued to you after payment of the capital gains tax which is due upon the expiration of the one year period of redemption provided for under Act No. 3135 as amended by Act No. 4118. Such being the case, and since the final Deed of sale was presented to the BIR Revenue District Office only on July 30, 1996, the title to the foreclosed property can be consolidated in your favor only after the payment of the capital gains tax including the corresponding surcharge, interest and compromise penalties computed after the expiration of the one year period of redemption reckoned from the date of the foreclosure sale. cdll Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue