Procedure for Mortgagee Banks in Effecting Payments of DST and CGT of Expanded Withholding Taxes

November 20, 1998 BIR RULING NO. 167-98 24 (D), 57 (B)-000-00-167-98 The Lawyers Group Unit 302, Gabriel III Condominium San Miguel Ave., Ortigas Center Pasig City Attention: Mr . Federico U . Alikpala , Jr . Gentlemen : This refers to your letter dated February 23, 1998 stating that you are the counsel of several banks which had instructed you to institute extrajudicial foreclosure proceedings on several real estate mortgages executed in favor of said banks by the respective borrowers thereof; that although the foreclosure auction sales are still scheduled on various dates, ranging from one to weeks' time from today, you had commenced to take steps in anticipation of the banks being awarded the sale of the foreclosed properties; that among such steps taken were to request the respective mortgagors to furnish you with copies of their TRU IDs or the pertinent applications therefore; that you have made representations with the RDO having jurisdiction over the communities where the respective mortgagors resided or had their last-known address; that you were able to obtain the TRU papers of some of the mortgagors, but most of the others either had not filed any TRU papers or, if they had, they must have filed them in some RDO other than those where you presumed they would have filed the same; that as soon as the auctioning sheriffs or notaries public shall have issued their respective certificates of sale, you shall have very limited time within which to pay the documentary stamps and capital gains taxes (or the expanded withholding taxes, when applicable); and that the field offices of the BIR refused to accept the pertinent tax returns thereon unless the TRU's of the sellers (i.e. the mortgagors) are submitted therewith. In connection therewith, you are requesting a ruling on the following: "(1) How the mortgagee banks should effect payments of the documentary stamps and capital gains taxes of the expanded withholding taxes, when applicable in the absence of the TRUs of the sellers (i.e., at the mortgagors) whose properties have been subjected to mortgage foreclosure proceedings? "(2) Since the mortgagees inevitably pay the same, may the mortgagees use their TRU papers? "(3) If the reply in Nos. 1 and 2, is in the affirmative in which BIR field office should the said taxes be paid, considering that: (a) the last known address of the mortgagors; (b) the location of the respective properties; and (c) principal office of the mortgagee bank may be in various places?" In reply thereto, please be informed that under Revenue Memorandum Order No. 6-92 dated January 15, 1992, the creditor-bank is the statutory seller in foreclosure sales of mortgaged real properties representing the owner-mortgagor of the real property so that said bank becomes liable to pay the capital gains tax due on such foreclosure based on the bid price in the auction sale. The bank, however, could get reimbursement or recovery of the capital gains tax payment if the right of redemption is exercised by the debtor-mortgagor or when the property is sold to any party whatsoever. (BIR Ruling No. 006-92 dated January 9, 1992) Such being the case, and since the mortgagee bank is the statutory seller, representing the owner-mortgagor of the real property, the TRU of the mortgagee-bank may be used for purposes of the payment of the capital gains tax and/or creditable withholding tax as well as the documentary stamp tax in foreclosure sales of mortgaged real properties. Under Revenue Regulations No. 8-98, within thirty (30) days following each sale or disposition, the capital gains tax return shall be filed by the seller and payment made to an Authorized Agent Bank (AAB) located within the Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located. Creditable withholding taxes deducted and withheld by the withholding agent/buyer on the sale, transfer or exchange of real property classified as ordinary asset, shall be paid by the withholding agent/buyer upon filing of the return with the Authorized Agent Bank (AAB) located within the Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located within the (10) days following the end of the month in which the transaction occurred. Provided, however, that taxes withheld in December shall be filed on or before January 25 of the following year. Upon presentation of the Capital Gains Tax Return or Creditable Withholding Tax Return with a bank validation evidencing full payment of the capital gains tax or the creditable withholding tax due on the sale, transfer, transfer, barter, exchange or other disposition of real property classified as capital or ordinary asset, as the case may be, the Revenue District Officer (RDO) of the revenue district where the property being transferred is located shall issue the corresponding Tax Clearance (TCL) or Certificate Authorizing Registration (CAR) for registration of the real property in favor of the transferee. Accordingly, the filing of the capital gains tax return, creditable withholding tax return and documentary stamp tax return and the payment of the tax thereof in foreclosure sale of mortgaged real property shall be made with the AAB located within the RDO having jurisdiction over the place where the property being transferred is located. Moreover, the TCL or the CAR for the registration of the real property in favor of the transferee shall likewise be issued by the RDO of the revenue district where the property being transferred is located. dctai Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue