Computation of Capital Gains and Documentary Stamp Taxes Due on the Transfer of Real Property

May 20, 1988 BIR RULING NO. 212-88 21 (e) 000-00 212-88 Gentlemen : This refers to your letter dated March 21, 1988 requesting in behalf of your client, Caltex (Phils.), Inc. a ruling on the correct basis of computing the capital gains and documentary stamp taxes due on the transfer of real property thru an extra-judicial mortgage foreclosure sale. cdta It is represented that on June 11 and October 21, 1985, Mr. Mario A. del Rosario mortgaged three parcels of land situated in Mariveles, Bataan in favor of your abovenamed client to secure the payment of P6,000,000.00 worth of petroleum products and other merchandise; that the market value of said mortgaged real properties as shown in the latest tax declaration are as follows: 1. T-101989 P52,040.00 2. T-101692 P15,880.00 3. T-109852 P74,342.40 Total market value per tax declaration P142,262.40 that Mr. Mario A. del Rosario failed to pay his aforesaid indebtedness and on May 25, 1987, your client filed a petition for extra judicial foreclosure; and that at the public auction sale conducted by the Sheriff of Bataan on July 27, 1987, the three parcels of land were sold to your client as the highest bidder for the total amount of P500,000.00. In reply, I have the honor to inform you that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from 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, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale , whichever is higher. In the instant case, when your client acquired the real properties thru a mortgage foreclosure sale, the bid price of P500,000.00 as shown in the Sheriff's Certificate of the sale shall be considered as the gross selling price. (BIR Ruling No. 406-87) On the other hand, the fair market value of the properties shall be determined according to their zonal values as provided in Revenue Audit Memorandum Order No. 3-87 dated June 3, 1987 which is already effective at the time of sale on July 27, 1987. In other words, the 5% capital gains tax shall be based on the bid price of P500,000.00 or on the aforesaid zonal values, whichever is higher. As regards the documentary stamp tax due on the mortgage foreclosure sale, the same shall be based on the bid price of P500,000.00. (BIR Ruling No. 406-87) cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner