BIR Ruling [UN-014-96]

January 5, 1996 BIR RULING [UN-014-96] Development Bank of the Philippines P.O. Box 800 Central Post Office 1200 Attention: Mr . Bonifacio M . Abad Senior Vice President Gentlemen : This refers to your letter dated August 23, 1995 stating that form February to July 1994, the Development Bank of the Philippines Tuguegarao Branch, has requested the Revenue District Officer of the Revenue District No. 13, Tuguegarao, Cagayan, to assess the capital gains tax and documentary stamp tax due on Certificates of Sale of foreclosed real properties belonging to twenty-six (26) mortgagors named therein; that the said Revenue District Officer assessed the capital gains tax and documentary stamp tax based on the total obligation of the mortgagors instead of the bid price as stated in the Certificates of Sale; that upon denial of your request for reconsideration of the assessments, you elevated the matter to the then BIR Regional Director Maximo Gutierrez of Revenue Region No. 2, Tuguegarao, Cagayan, but the latter sustained the correctness of the assessments and accordingly ruled that the tax base of the capital gains tax and documentary stamp tax on Certificates of Sale issued to DBP as the successful highest bidder during the extrajudicial sale of mortgaged properties is the total outstanding obligation of the mortgagors and not the bid price of the bank; and that to avoid the payment of penalties, interest and surcharge for late filing, you paid under protest the capital gains tax and documentary stamp tax on the said twenty-six (26) Certificates of Sale as "assessed." On the basis of the foregoing, you are now requesting our opinion on the following queries, viz.: "1. What should be the tax base for computing the documentary stamps and capital gains taxes that the DBP should pay on the basis of the Certificates of Sale issued by the Sheriff pursuant to an extrajudicial foreclosure sale under Act 3135 and presented for tax assessment to the BIR District Office No. 13 Tuguegarao, Cagayan? "2. If the basis for assessment of documentary and capital gains taxes is the bid price as reflected in the said Certificates of Sale, is the DBP entitled to claim for tax credit of all excess taxes, both capital gains and documentary stamp taxes erroneously collected by the said BIR District Office from DBP? In reply, please be informed that in extrajudicial foreclosure sales under Act No. 3135 as amended by ACT No. 4118, the creditor-financial institution (bank, finance and insurance companies) is the statutory seller representing the owner-mortgagor of the real property, hence said financial institution becomes liable for the payment of the capital gains tax on such foreclosure sale based on the bid price in the auction sale. (BIR Ruling No. 006-92; RMO No. 6-92) Such being the case, the contention of the Revenue District Officer of Tuguegarao, Cagayan which was sustained by the BIR Regional Director thereat to the effect that the capital gains tax and documentary stamp tax on extrajudicial foreclosure sale under Act No. 3135 as amended by Act No. 4118 should be based on the total outstanding obligation of the mortgagor/s and not on the bid price, is absolutely without any legal basis. Of course, you can file a claim for tax credit of the overpaid capital gains tax and documentary stamp tax on the Certificates of Sale on foreclosed real properties belonging to the twenty-six (26) mortgagors named by you which arose on account of the erroneous ruling of the BIR Regional Director of Cagayan, provided that your claim for tax credit is made within two (2) years from date of payment, pursuant to Section 204(3) of the Tax Code, as amended. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)