Fair Market Value at Time of Sale

April 23, 1993 BIR RULING NO. 139-93 FAIR MARKET VALUE AT TIME OF SALE 21 (e) 50 (b) 000-00 139-93 Mr. Pio Y. Go 2nd Floor, CRM Building Cebu City This refers to your letter dated February 10, 1993 requesting a ruling as to whether the 5% capital gains tax can be based on the "recorded selling price of other properties in the same area already filed in our (District) office" which was recently adopted and being implemented by Revenue Region No. 7 Central Visayas, Cebu City, Bureau of Internal Revenue. cdtech It is represented that in a Memorandum dated January 28, 1993 of the Chief, Legal Branch, Revenue Region No. 7, Central Visayas, Cebu City which was duly approved by the Regional Director, Ms. Sol R. Hubahib, it is stated that "The legal basis within which the Office reliefs on the imposition of the 5% capital gains or creditable withholding tax is Section 21(e) which states that the 5% tax rate shall be based on the gross selling price or the fair market value prevailing at the time of sale whichever is higher. The term "fair market value prevailing at the time of sale" may be construed to mean the recorded selling price of other properties in the same area already filed in our Office . Therefore, any finding of deficiency tax is subject to the civil penalties under Sections 248 and 249 of the Tax Code, as amended" (Emphasis supplied) In reply thereto, I have the honor to inform you 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. Moreover, on all sales or exchanges of real property subject to the creditable withholding tax prescribed by Revenue Regulations Nos. 12-89 and 1-90, the basis of the withholding tax is gross selling price or the total amount of consideration or its equivalent paid to the seller. Revenue Memorandum Circular No. 7-90 defines "gross selling price" as the consideration stated in the sales document or the fair market value/zonal value whichever is higher. Such being the case, the alleged Memorandum dated January 28, 1993 of the Chief, Legal Branch, Revenue Region No. 7, Central Visayas, Cebu City, which was duly approved by the Regional Director, Ms. Sol R. Hubahib, to the effect that the term "fair market value prevailing at the time of sale" may be construed to mean the recorded selling price of other properties in the same area already filed in our Cebu Office has no legal basis and is therefore of no legal force and effect. cdt VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue