BIR Ruling No. 138-12

February 27, 2012 BIR RULING NO. 138-12 Secs. 24 (D) (1) and 196 of the NIRC, as amended; 000-00 Cecilia Trevett Washington Avenue, Royale Tagaytay Estates Alfonso, Cavite Madam : This refers to your letter dated September 1, 2011 requesting for a clarification as to the basis for the payment of Capital Gains Tax. It is represented that on October 10, 2007, you purchased a parcel of land from United Coconut Planters Bank described as: Property Description One (1) parcel land Area 1,835.00 square meters Location Block 7 Lot 1, Mt. Malarayat, Lipa City Title Number 134135 Registry of Deeds City of Lipa Price P4,459,500.00 That on August 22, 2011, the above described property was subsequently sold to Dr. Norberto V. Martinez for P5,505,000.00. Now, you are requesting for a ruling that the tax base in the computation of the Capital Gains Tax and Documentary Stamp Tax should be the actual financial gain or the difference between the actual price and the original purchase price plus legitimate expenses. In reply, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides, viz.: "(D) Capital gains tax from Sale of Real Property. "(1) In General. The provisions of Section 39 (B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, is hereby imposed upon 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: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporation shall be determined either under Section 24 (A) or under this Subsection, at the option of the Taxpayer. " Moreover, under Section 196 of the same Code, in all cases involving sale, exchange, or any disposition of real property, the tax base for documentary stamp tax purposes shall be the same as the tax base used in the computation of the capital gains tax which means, gross selling price, fair market value, or zonal value of the real property prevailing at the time of sale, whichever is higher. Accordingly, the gross selling price, fair market value, or zonal value of the real property prevailing at the time of sale, whichever is higher shall be the tax base to be used in computing the capital gains tax and documentary stamp tax due and to be paid on the sale of your property. In view of the foregoing, the request that the tax base in the computation of the Capital Gains Tax and Documentary Stamp Tax should be the actual financial gain or the difference between the actual price and the original purchase price plus legitimate expenses is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue