Base for Computation of Capital Gains Tax and Documentary Stamp Tax on Transfer of Real Property

September 17, 1991 BIR RULING NO. 191-91 16 (e) 000-00 191-91 Gentlemen : This refers to your letter dated September 17, 1990 stating that you are the attorney-in-fact of the spouses Cesario G. Nazario and Remedios V. Nazario, registered owners of Paradise Farm III, a farm subdivision situated in Barrio Sto. Cristo, San Jose del Monte, Bulacan; that on October 2, 1959, lots 3 & 4 Blk. 1, in Paradise Farms III were sold to the spouses Mariano Ornum and Erlinda M. Ornum under a land purchase Contract Nos. 16 and 17 with a Contract Price of P2.00 per square meters; that on August 15, 1971, Mr. Mariano M. Ornum died intestate; and that the remaining balance for the purchase of the two lots was paid in full on January 11, 1972, that with the final settlement of the estate of Mariano M. Ornum, which took a long time, you are now ready to execute a deed of sale for the above lots in favor of their heirs; that you were informed by the Revenue District Officer of Valenzuela, Bulacan, that in the computation of the documentary stamps and capital gains taxes on the sale, the tax base will be the market value of P100.00 per square meter not the selling price of P2.00 nor the fair market value per latest tax declaration which is P6.00 per square meter. Accordingly, you now request for a confirmation of your opinion that the correct base should be P6.60 per square meter, plus 10% thereof, not P100.00 per square meter. cdti In reply, please be informed that under Revenue Memorandum Circular No. 34-91, public instruments transferring real properties presented to the appropriate internal revenue official beyond three (3) months from the date of notarization shall be considered as antedated and the tax liabilities of the parties shall be determined in accordance with the rules and regulations obtaining at the time such documents are presented to the BIR under Revenue Memorandum Circular No. 43-91, however, when there is only a delay in the presentation of the sales documents, the kind of tax, rate of tax, zonal value or fair market value, obtaining at the date of notarization shall be applied but the penalties for late filing of return and payment of tax shall be imposed. In the instant case, a lot which was represented to have been purchased on installment at the Contract price of P2.00 per square meter and paid in full as of January 11, 1972 should have been conveyed by the seller shortly thereafter by way of a deed of sale. Since none was made then, a reasonable presumption exists that the sale is a current transaction; hence, the deed of sale to be executed now will be taxed on the basis of the gross selling price, or fair market value or zonal value whichever is higher, prevailing during the current year. In other words, it is unconscionable that the fair market value of the property in question should increase only from P2.00 to P6.60 over a period of twenty (20) years, considering the proximity of San Jose del Monte, Bulacan, to Metro Manila. Such being the case, we sustain our Revenue District Officer's opinion that the capital gains tax and documentary stamp tax of the transfer of property in question should be computed on the tax base of P100.00 per square meter in accordance with Section 16 (e) (1) of the Tax Code. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge