Clarification of RR 4-99 on Extrajudicial Foreclosure Sales

November 17, 1999 BIR RULING NO. 177-99 24 (D) (1)-000-00-177-99 Chamber of Thrift Banks Unit 1409 Cityland 10 Condominium Tower H.V. dela Costa Street, Salcedo Village Makati City Attention: Mr . Dionisio C . Ong President Gentlemen : This refers to your letter dated April 22, 1999 requesting clarification of the following issues relative to Revenue Regulations No. 4-99 to wit: "1. Section 3, paragraph 1 of RR 4-99 states: "(1) In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale, no capital gains tax has been derived by the mortgagor and no sale or transfer of real property was realized . . . . "Our jurisprudence, however, on the matter: that the one-year period of redemption provided for in Section 6 of Act No. 3135 as amended by Act No. 4118 commences to run not from the date of the sale but from the date when the certificate of sale issued by the sheriff is registered in the Office of the Register of Deeds. (People's Financing Corporation vs. Court of Appeals, 192, SCRA 34, 41 citing Sumerariz vs. Development Bank of the Philippines, 21, SCRA 1374). LexLib "2. Section 3, paragraph 2 and Section 4, paragraph 2 of Revenue Regulations No. 4-99 provide: "(2) In case of non-redemption, the capital gains tax on the foreclosure sale imposed under Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Section 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year redemption period" (Sec. 3, par. 2) "Query No. 1. What if the Bank agrees to extend the redemption period and the mortgagor exercises his right of redemption within the extended period, are the capital gains and documentary stamp taxes due on the transaction? xxx xxx xxx "Query No. 2. What if the Bank agrees to extend the redemption period upon the request of the mortgagor but the latter decided later on not to redeem the foreclosed property, is the Bank liable to pay the penalties and surcharges because of failure to pay within thirty (30) days from the expiration of the redemption period as required under Revenue Regulations No. 4-99? xxx xxx xxx "Query No. 3. May Revenue Regulations No. 4-99 be applied retroactively? xxx xxx xxx "Query No. 4. If Revenue Regulations No. 4-99 is to be given retroactive effect but the capital gains tax and documentary stamp tax have already been paid upon the registration of the certificate of sale, may these payments be refunded if the mortgagor eventually decides to exercise his right of redemption during the one year redemption period? xxx xxx xxx In reply thereto, please be informed as follows: (1) In extrajudicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from the date of sale. The date of sale has been construed to mean the date of registration of the certificate of sale in the Registry of Deeds. (Santos vs. Register of Deeds of Manila, L-26752, March 19, 1971; Reyes vs. Tolentino et al., L-29142, November 29, 1971) In the case of foreclosure of mortgage by banks, finance and insurance companies whether judicial or extrajudicial, the mortgagor has the right of legal redemption of one year from the registration of the certificate of sale. (Quimson vs. PNB, L-24920, November 24, 1970) Thus, the counting of the one year period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial and extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of the registration of the certificate of sale in the Registry of Deeds. (2) The period of redemption of the mortgaged property has been fixed by law and the same cannot be extended by the mortgagee-bank, finance and insurance companies nor by the parties in the case of extrajudicial foreclosure of mortgage under Act No. 3135, as amended; (3) Pursuant to Section 246 of the Tax Code of 1997, any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with Sections 244 and 245 of the Tax Code of 1997, or any rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. In other words, in the absence of any of the above-enumerated exceptions, the aforementioned regulations shall have prospective application, hence, it shall only apply to transactions after the effective date of the rules or regulations. (ABS-CBN Broadcasting Corporation vs. Court of Tax Appeals, et. al. 108 SCRA, p. 143; CIR vs. Burroughs Limited and CTA L-66653, June 19, 1986) Indeed, like other statutes, tax laws operate prospectively, whether they enact, or amend or repeal, unless the purpose of the legislature to give it retrospective effect is expressly declared or may clearly be implied from the language used. ( Cebu Portland Cement Co. vs. Collector of Internal Revenue , GR No. L-20563, October 29, 1968, cited in Statutes, 1993 Ed., by Alcantara, p. 180) Such being the case, Revenue Regulations No. 4-99 amending Revenue Memorandum Order No. 29-86, as amended, relative to the payments of capital gains tax and documentary stamp tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies shall only apply to foreclosure sales after the effective date of the said regulations. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue