Pacto de Retro Sale Subject to Capital Gains Tax

September 16, 1986 BIR RULING NO. 169-86 21-e 000-00 169-86 S i r : This refers to your letter dated August 6, 1986, stating that on December 18, 1985 Ms. Grace Turla Melendrez sold her real property in favor of Ms. Amina Norma P. Ibrahim-Uy for P200,000; that she paid the capital gains tax of P2,662.00; and that on July 3, 1986 she repurchased the said property for the same amount of P200,000. Based on the foregoing, you now request a ruling as to whether Ms. Amina Norma F. Ibrahim-Uy is subject to the capital gains tax considering that she sold the aforesaid property for the same amount that she purchased the same. In reply thereto, I have the honor to inform you that the pacto de retro sale made by Ms. Grace Turla Melendrez in favor of Ms. Amina Norma F. Ibrahim-Uy on December 18, 1985 is subject to the capital gains tax pursuant to Section 34(h) of the Tax Code, before its amendment by P.D. No. 1994 effective January 1, 1986. (BIR Ruling No. 217-81). When the former (vendor-a-retro) repurchased the property on July 3, 1986, the latter (vendee-a-retro) made a disposition of real property; hence she is subject to the capital gains tax of 5% based on the gross selling price. Under Section 34(h) (now Section 21(e) of the Tax Code sale, exchange of other disposition of real property classified as capital assets shall be subject to the capital gains tax of 5%. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner