Redemption of Property Subject to a Pacto De Retro Sales Not Subject to Capital Gains Tax and Documentary Stamp Tax

November 21, 1994 BIR RULING NO. 158-94 21 (e) 000-00 158-94 Ms. Emily Simangan-Castillo 1051 Don Quijote Street Sampaloc, Manila M a d a m : This refers to your letter dated October 24, 1994 requesting for a ruling as to whether or not the redemption of realty subject to a " pacto de retro " sales or a Sale with the right to Repurchase is subject to capital gains tax and documentary stamp tax. It is represented that last December 29, 1993, you borrowed P500,000.00 from your aunt, Miss Fe Clara Aragones; that to guarantee the said loan, you executed in her favor a Deed of Sale with a Right to Repurchase (within a period of 5 years) your real property situated at No. 1051 Don Quijote Street, Sampaloc, Manila covered by TCT No. 183356 issued by the Registry of Deeds of the City of Manila; that as a consequence of said sale transaction, you paid a capital gains tax of P48,001.00) and documentary stamp tax of P9,610.00; and that last October 19, 1994, you redeemed the aforesaid real property from Miss Fe Clara Aragones, by paying her your indebtedness of P500,000.00. In reply, please be informed that under 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 trust, shall be taxes 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. From the foregoing provision of the Tax Code, it is clear that only pacto de retro sales are subject to the 5% capital gains tax. The subsequent redemption of the property subject to a pacto de retro sale is not embraced therein. Accordingly, this Office is of the opinion as it hereby holds that your redemption of your aforesaid real property from Miss Fe Clara Aragones on October 19, 1994 is not subject to the 5% capital gains tax imposed under section 21(e) of the Tax Code, as amended. Moreover, under Section 196 of the Tax Code, as amended, there shall be collected a documentary stamp tax at the rate provided therein on all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or to any other persons designated by such purchaser or purchasers. Such being the case, and since by redeeming your aforementioned real property from Miss Fe Clara Aragones does not make you a purchaser of the said realty, the Deeds of Resale executed by Fe Clara Aragones on October 28, 1994 for the purpose of your said redemption is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment to said deed is subject to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended. cdpr Very truly yours, RENE G. BAEZ Acting Commissioner