BIR Ruling No. 197-11

June 28, 2011 BIR RULING NO. 197-11 Sections 27 (D) (5), 57, 106, 188, 196 of the Tax Code of 1997, as amended; RR 6-2001; BIR Ruling No. 158-94; BIR Ruling No. DA-365-04 Sofronio A. Sison No. 44 Saint Andrew St. Maries Village, San Bartolome Novaliches, Quezon City Gentlemen : This refers to your letter dated December 16, 2010 requesting for a ruling on the tax implications on the transfer of real property from Edgardo Mayuga to 3H Enterprises LTD, Inc. On October 21, 2003, Edgardo Mayuga executed a Deed of Sale with Right to Repurchase over a parcel of unregistered land situated at Brgy. Berinayuan, Laurel, Batangas covered by a Tax Declaration No. 008-00277 with an aggregate area of 830 sq.m. in favor of 3H Enterprises LTD, Inc. with Tax Identification No. 003-945-934-000. In reply thereto, please be informed that under Section 24 (D) (1) of the Tax Code of 1997, as amended, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the Tax Code, whichever is higher, is imposed upon 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 trusts. ADcSHC As stated above, when an individual parts with his ownership over a realty for a consideration, a corresponding capital gains tax shall be imposed as it is presumed that said individual derived a gain therefrom. 1 Accordingly, since in a pacto de retro sale the owner-vendor transfers his ownership over a realty to another for a consideration, the gain presumed to be realized by the former in the said transaction shall be subject to capital gains tax which shall be paid before registration of the deed of sale with right to repurchase with the Register of Deeds. (BIR Ruling No. DA-365-04 dated June 28, 2004) Furthermore, a pacto de retro sale is subject to the documentary stamp tax (DST) imposed under Section 196 of the 1997 Tax Code, as amended, as the same is a transfer or conveyance of real property to a purchaser for a consideration. On the basis of the foregoing, it is clear that the Deed of Sale with Right to Repurchase over a parcel of unregistered land is subject to the 6% capital gains tax under Section 27 (D) (5) of the Tax Code of 1997, as amended, and DST under Section 196 of the Tax Code of 1997 since the Deed of Sale with Right to Repurchase over a parcel of unregistered land is considered a sale of realty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. cAaDCE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. BIR Ruling No. 158-94.