Taxability of Sales of Acquired Assets

December 28, 1992 BIR RULING NO. 379-92 24 50 (b) 29-89 379-92 Revenue District No. 20 Bureau of Internal Revenue Cabanatuan City Attention: Mr . Juanito P . Alcantara Revenue Officer III Gentlemen : This refers to your letter dated June 25, 1992 requesting a ruling as to whether the Development Bank of the Philippines (DBP) is subject to the expanded withholding tax on its sales of acquired assets (real property); and whether the buyer of such acquired assets is required to withhold the said creditable expanded withholding tax in accordance with Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90. It appears that DBP is a government-owned and controlled corporation; that it is not actively engaged in real estate business; that every now and then real properties of delinquent mortgagor-debtors are acquired by the bank through forfeiture/foreclosure and subsequently sold through public bidding. In reply, please be informed that under Section 31 of Republic Act No. 85, as amended (DBP Charter), DBP is subject to the corporate income tax imposed by Section 24 of the Tax Code. Pursuant to Revenue Memorandum Circular No. 7-90 amplifying Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90, all sales, exchanges, or transfers of real properties (whether classified as ordinary or capital asset) by corporations consummated on or after January 1, 1990 are subject to the creditable withholding tax. Moreover, in foreclosure sales of mortgaged real properties by a bank, the creditor-bank is the statutory seller, representing the owner-mortgagor of the real property, so that the bank becomes liable to pay the capital gains tax due on such foreclosure sale based on the bid price in the auction sale. The bank, however, could get reimbursement or recovery of the capital gains tax payment, if the right of redemption is exercised by the debtor-mortgagor, or when the property is sold to any party. (BIR Ruling Nos. 101-89; 118-91; RMO 041-91; 006-92). Under Section 1 (iii), Revenue Regulations No. 1-90, a creditable income tax at the rate of 5% shall be withheld from the gross selling price or total amount of consideration or its equivalent paid to the seller corporation which is not habitually engaged in real estate business for its sale, exchange or transfer of real property, whether capital or ordinary asset. Such being the case, the buyer-vendee who buys at the auction sale the property or the corporate-debtor sold at auction by the bank (the statutory seller) is the withholding agent required to withhold the 5% withholding tax for remittance to the BIR pursuant to Section 2, Revenue Regulations No. 6-85, as amended. On the other hand, if the debtor-owner is an individual subject to the final capital gains tax of 5% under Section 21 (e) of the Tax Code, DBP who is the statutory seller (in representation of the debtor-owner) shall file a final capital gains tax return for the individual-debtor within thirty (30) days from the auction sale, and pay the corresponding capital gains tax and documentary stamp tax computed on the basis of the actual consideration/highest or winning bid price (RMC No. 41-91). Payment by the buyer-vendee to DBP shall not be subject to the 5% withholding tax. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue