Period in Paying the 5% Capital Gains Tax

May 27, 1987 BIR RULING NO. 138-87 21 (e) 000-00 138-87 Gentlemen : This refers to your letter dated March 5, 1987 requesting a ruling as to when you will pay the 5% capital gains tax, i.e., before the registration of the certificate of sale or after the expiration of the period of redemption, when title to the property foreclosed will be consolidated in your favor. In reply therefore, I have the honor to inform you that on the premise that the amount representing the capital gains tax forms part or is tacked with the real property which already is under your control and custody as mortgagee-transferee, you shall pay the 5% capital gains tax based on the selling price shown in the mortgage foreclosure sale. (Revenue Memorandum Order No. 29-96) Moreover, the 5% capital gains tax is imposed on "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 individual, including estates and trusts [Sec. 21(e), Tax Code, as amended by Executive Order No. 37] A mortgage foreclosure sale is a form of conditional sale transactions. (Revenue Memorandum Circular No. 41-86) Accordingly, the 5% capital gains tax is due on the gains derived from said mortgage foreclosure sale. In other words, the tax should be paid after said foreclosure sale but before the registration of the certificate of sale issued by the auctioneer conducting the foreclosure sale. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner