BIR Ruling No. 444-13

November 27, 2013 BIR RULING NO. 444-13 Tax Code of 1997, as amended, Sections 24 (D) (1) & 196; RR 9-2012 Mr. Richard Bryan C. Uy 53 Mapalad St.,Paraiso Quezon City Dear Mr. Uy, This refers to your letter dated October 9, 2012 requesting clarification on the tax base for the computation of capital gains tax (CGT) and documentary stamp tax (DST) on the purchase of a real property sold by the Provincial Government of Laguna due to the owner's delinquency in the payment of real property tax. In reply, please be informed that Section 2 of Revenue Regulations (RR) No. 9-2012 dated May 31, 2012 provides for the tax base of the CGT and DST due on the sold foreclosed/auctioned off properties, to wit: " Section 2 . Taxability of Owner's/Mortgagor's Failure to Redeem his Foreclosed/Auctioned Off Property within the Applicable Statutory Redemption Period . In case of non-redemption of properties sold during involuntary sales, regardless of the type of proceedings and personality of mortgagees/selling persons or entities, the capital gains tax (CGT) imposed under Section 24(D)(1) and 27(D)(5) of the Tax Code in relation to Section 57 of the Tax Code and RR 2-98, as amended, if the property is a capital asset; or the Creditable Withholding Tax (CWT) imposed under Section 57 and RR 2-98, as amended, if the property is an ordinary asset; the value added tax (VAT) imposed under Section 106 of the Tax Code and RR 16-05, as amended; and the documentary stamp tax (DST) imposed under Section 196 of the Tax Code shall become due. The buyer of the subject property, who is deemed to have withheld the CGT or CWT due from the sale, shall then file the CGT return and remit the said tax to the Bureau within thirty (30) days from expiration of the applicable statutory redemption period; or file the CWT return and remit the said tax to the Bureau within ten (10) days following the end of the month after expiration of the applicable statutory redemption period. AHCTEa If the property sold through involuntary sale is under the circumstances which warrant the imposition of VAT, the said tax must be paid to the Bureau by the VAT-registered owner/mortgagor on or before the 20th or 25th day, whichever is applicable, of the month following the month when the right of redemption prescribes. The DST return shall be filed and the said tax paid to the Bureau within five (5) days after the close of the month after the lapse of the applicable statutory redemption period. The CGT/CWT/VAT & DST shall be based on 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 . " (emphasis supplied) Based on the foregoing, the unredeemed foreclosed/auctioned off properties sold during involuntary sales, regardless of the type of the proceedings, are subject to CGT/CWT/VAT, as the case may be, and DST. The appropriate tax that may be due thereon shall be computed based on 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. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue