BIR Ruling No. 273-13

July 17, 2013 BIR RULING NO. 273-13 Secs. 24 (D) (1), 27 (D) (5) and 196 of the NIRC, as amended; Revenue Regulations No. 9-2012; BIR Ruling No. 036-00; BIR Ruling No. 046-01; BIR Ruling No. 224-11 Hon. Rey T. Uy Office of the City Mayor Tagum City, Davao del Norte Sir : This refers to your letters dated October 22, 2012, requesting exemption from payment of capital gains tax and documentary stamp tax on real properties forfeited by the City Government of Tagum for nonpayment of real property tax. It appears that the City Government of Tagum has conducted several public auctions of real properties which are delinquent in the payment of real estate taxes. Upon the expiration of one (1) year reglementary period, the City Treasurer is mandated to issue a final Deed of Sale in favor of the winning bidder, however, the City Government of Tagum is the one who will shoulder the Capital Gains Tax and Documentary Stamp Tax. Hence, this request. In reply, Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997, as amended, provides: "SEC. 24. Income Tax Rates. xxx xxx xxx (D) Capital Gains from Sale of Real Property . (1) In General. The provisions of Section 39(B) notwithstanding, 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 this Code, whichever is higher, is hereby 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: . . . ." SEIDAC xxx xxx xxx SEC. 27. Rates of Income tax on Domestic Corporations. xxx xxx xxx (D) Rates of Tax on Certain Passive Incomes . xxx xxx xxx (5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings . A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price of fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings." The subject sale effected through public auction, being a disposition of real property under Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997 enumerated above, is subject to the capital gains tax (CGT) of 6% on the capital gains presumed to have been realized from the said conveyance of real property considered as capital assets. It is likewise subject to documentary stamp taxes (DST) imposed under Sections 196 and 188 of the Tax Code of 1997. The CGT and DST are for the account of the seller. However, since public auction sale is similar to a mortgage foreclosure sale (BIR Ruling Nos. 036-00 dated September 11, 2000 and 224-11 dated July 12, 2011), the basis for computing the CGT and DST on such sale transaction shall be whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Section 6 (E) of the Tax Code of 1997, pursuant to Section 2 of Revenue Regulations No. 9-2012. Provided that when one of the contracting parties is the Government, the DST due thereon is computed based on the actual consideration stipulated in accordance with Section 196 of the Tax Code of 1997. In view of the foregoing, the CGT return should have been filed and the CGT paid within thirty (30) days from the expiration of the applicable statutory redemption period. On the other hand, the DST return shall be filed and the said tax paid within five (5) days after the close of the month after the lapse of the applicable statutory redemption period. (Section 2, Revenue Regulations No. 9-2012) Accordingly, this Office regrets to deny your request for exemption from payment of capital gains tax and documentary stamp tax on real properties forfeited by the City Government of Tagum for nonpayment of real property tax for lack of legal basis. cCSHET Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue