BIR Ruling No. 403-12

June 15, 2012 BIR RULING NO. 403-12 Sections 24 (D) (1), 56 (A) (3) & 196 NIRC; RMC 41-86; BIR Ruling No. 016-97; BIR Ruling No. 141-98; BIR Ruling No. 045-01 Privatization and Management Office 104 Gamboa Street, Legaspi Village, Makati City Attention: Mr. Cesar Luis M. Pargas OIC-Legal Service Gentlemen : This refers to your letter dated 04 November 2010 received by this Office on 09 January 2011 from the BIR Records Division requesting tax exemption on the transfer of ownership of a parcel of land to the National Government. Documents submitted disclosed that the Privatization and Management Office (PMO) is a successor agency of the Asset Privatization Trust (APT), a government agency created pursuant to E.O. No. 323 dated December 5, 2000 and whose main function is to manage and dispose government corporations, assets and idle properties, on behalf of the National Government; that by virtue of the Deed of Transfer dated February 27, 1987 executed by the Development Bank of the Philippines (DBP) and the Government of the Republic of the Philippines (GRP), through APT, DBP transferred to APT (now PMO), a parcel of land located in Sipak Maly, San Mateo Rizal, covered by Transfer Certificate of Title (TCT) No. 33544, formerly owned by United Cathay Industries Corporation; that PMO has paid in full the property taxes and other fees covering the period 1985 to 2008; that PMO is now in the process of transferring the ownership of the 12 parcels of land from DBP to the National Government, through PMO, before the Registry of Deeds of Marikina; that per initial examination of documents submitted and according to the Memorandum Report of the Chief, Assessment Section of Revenue District Office (RDO) No. 45-Marikina City, the following information are revealed: 1) The subject property (TCT No. 33544) is still under the name of United Cathay Industries Corporation (UCIC); 2) The annotation at the back of said title, per Entry No. 57315 stated that the subject title was mortgaged to DBP; 3) Entry No. 696915 stated that a Certificate of Sale was issued in favor of DBP and Asset Privatization Trust; 4) Entry No. 696916 stated a Waiver of Rights executed by United Cathay Industries Corporation in favor of the GRP, waiving its right of redemption; 5) That there is no proof that Capital Gains and Documentary Stamp Taxes were paid on the Certificate of Sale; and 6) That the subject of the said request for tax exemption is the transfer of the subject property from DBP to the National Government through the PMO. EcSCHD and that the District Officer of RDO 49 is of the position that: "There would be no question that the transfer from DBP to the National Government is indeed exempt from Capital Gains Tax (CGT) and Documentary Stamp Tax (DST).The legal issue is whether or not our Office can issue tax exemption for the Certificate of Sale for the transfer from UCIC to DBP? It is noteworthy to mention that DBP, being a statutory seller for the foreclosed property of UCIC by virtue of the Certificate of Sale, shall shoulder all taxes arising from the transfer." In reply, please be informed that the property being transferred by DBP to the National Government, through the PMO is real property previously owned by UCIC which was sold on public auction, with a Certificate of Sale being issued to DBP and APT (now PMO). The exemption of PMO on the transfer of non-performing assets of government financial institutions and certain government owned and controlled corporations is in line with the privatization program contemplated in Article 1, Section 1 of Proclamation No. 50 and that the disposition of these non-performing assets by the PMO, (formerly APT) is exempt from the payment of the capital gains tax. However, in a "block sale" of real and personal properties, only the consideration attributed to the real property shall be subject to the documentary stamp tax under Section 196 of the 1997 Tax Code. (BIR Ruling No. 141-98 dated September 29, 1998) It appears that the transfer of the property from UCIC to DBP as a result of the auction sale where such property was made subject of a Certificate of Sale in favor of DBP has not been cleared of taxes prior to the conveyance of the same property to the National Government. Thus, no registration of any document transferring real property shall be effected by the Registry of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid. (Section 56 [A] [3] of the Tax Code of 1997) The capital gains tax 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 such as mortgage foreclosure sales whether it is done judicially or extra-judicially. (BIR Ruling No. 045-01 dated September 26, 2001) However, it appears that in 1989, the provisions of the capital gains tax law (Batas Pambansa [B.P.] Blg. 37) in force at that time is explicit that only individuals, including estates and trusts are liable to the 5% capital gains tax on dispositions of real properties prescribed therein. Revenue Memorandum Circular No. 41-86, in implementing B.P. Blg. 37, as amended, provided that: "If the vendor/transferor is a corporation, the Register of Deeds shall not require the said BIR clearance for purposes of recording the transaction and effecting transfer of title, provided, that the corresponding documentary stamp tax on the document of sale, exchange or disposition had been duly paid through the corresponding Revenue District Office and the official receipt number; amount of stamp tax paid and date of payment duly noted on all copies of the taxable instrument, pursuant to (then) Section 209 of the National Internal Revenue Code, as amended by Presidential Decree No. 1994." In view of the foregoing and considering that the owner-mortgagor of the subject property is a corporation (UCIC),DBP, as the statutory seller representing UCIC, was likewise not subject to CGT but only to DST. In view of the foregoing, this Office is of the opinion that DST is due on the transfer of property covered by TCT No. 33544 in the name of UCIC in favor of DBP since a Certificate of Sale has been issued to the latter on May 12, 1989 and that the former corporation has waived its right to redeem the property in the same year as inscribed in the Title in 2008. 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 as represented are different, then this ruling shall be considered null and void. AIcECS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue