Payment of Capital Gains Tax Prior to Sheriff's Certificate of Sale Registration

July 13, 1988 BIR RULING NO. 313-88 21 (e) 145-87 313-88 Gentlemen : This refers to your letter dated March 18, 1988 requesting on behalf of your client, Perpetual Savings Bank (PSB) a ruling whether capital gains tax should first be paid before the Sheriff's Certificate of sale can be registered with the Register of Deeds. It is represented that your abovenamed client is now under liquidation by the Central Bank of the Philippines; that to satisfy the judgment rendered by the Regional Trial Court of Makati; Branch 136 in Civil Case No. 12706 entitled "Perpetual Savings Bank vs. Cornelia La Cuesta Falcon and Elmo Falcon" for recovery of the sum of One Hundred Thousand Pesos (P100,000.00) plus twenty five percent (25%) attorneys fees, penalties and charges, the Court issued a writ of execution and on a parcel of land together with its improvements covered by TCT No. 512902 in the name of Cornelia La Cuesta Falcon and Elmo Falcon was levied upon; that sometime in October 26, 1987 by virtue of said writ of execution, the Deputy Sheriff of Makati sold at public auction the said parcel of land; that since the bank was the sole bidder for Three Hundred Eight Thousand Five Hundred Ten Pesos (P308,510.00), no payment was actually made instead the amount was merely credited in partial satisfaction of the judgment debt; and that to annotate the Sheriff's Certificate of sale, the Register of Deeds is requiring your client to first pay the capital gains tax. In reply, please be informed that your request is answered in the affirmative. Under Section 21(e) of the Tax Code, as amended, 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 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. This accordingly, includes sale effected thru a public auction sale. In other words, in the instant case, the 5% capital gains tax, which is payable by Ms. Cornelia La Cuesta Falcon and Mr. Elmo Falcon as the registered owners of TCT No. 512902 and judgment debtor, should be paid after said auction sale but before the registration of the Certificate of Sale issued by the auctioneer conducting the auction sale based on the gross selling price shown in the Sheriff's Deed of Sale in the amount of P308,510.00 or the fair market value of the property whichever is higher. Moreover, the Sheriff's Deed of Sale is subject to documentary stamp tax based on the consideration or value received or paid for the land as stated on said Deed pursuant to Section 196 of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner