Revocation of RMO No. 33-81, as Amended by RMO No. 18-82 Re Issuance of Certification Authorizing Transfer of Title to Real Property Acquired by Banks, Finance Companies Thru Foreclosure Sales

September 3, 1986 REVENUE MEMORANDUM ORDER NO. 29-86 SUBJECT : Revocation of RMO No. 33-81, as Amended by RMO No. 18-82 Re Issuance of Certification Authorizing Transfer of Title to Real Property Acquired by Banks, Finance Companies Thru Foreclosure Sales TO : All Internal Revenue Officers and Others Concerned 1. In Revenue Memorandum Order No. 33-81, as amended by Revenue Memorandum Order No. 18-82 dated May 28, 1982, this Office allowed that a certification authorizing transfer of title to real property classified as capital asset be issued even before payment of the capital gains tax, if purchased by a bank, finance company or insurance company thru a mortgage foreclosure sale, considering the administrative difficulty and prejudice sustained by the said financial entities in connection with the said certification requirement. This difficulty was occasioned by the requirement that the capital gains tax shall be based in net capital gain derived by the mortgagor-seller from the mortgage foreclosure sale. But such net capital gain could not be determined since the mortgagor-seller did not bother to file the corresponding capital gains tax return, probably because of his adverse financial condition - a predicament which also probably caused the foreclosure of his real estate mortgage. Because of this situation, the aforementioned memorandum orders allowed issuance of BIR certification authorizing transfer of title, without the pre-payment of the capital gains tax, subject to condition that the mortgagor-purchaser shall furnish the corresponding Revenue District Office with: (a) The name of the debtor-mortgagor, his legal residence or principal place of business; (b) Amount of loan; (c) Fair market value of the property mortgaged; and (d) Copy of the deed or real estate mortgage and the certificate of sale executed by the Sheriff, in order that the BIR shall be able to determine and assess the corresponding capital gains tax arising from the transaction, if there shall be any. 2. The reason for RMO No. 33-81, as amended by RMO No. 18-82 does not anymore exist. Under Section 21(e) of the National Internal Revenue Code, as amended by P.D. 1994, and as further amended by Executive Order No. 37 (effective August 1, 1986)- 2.1 - The schedular capital gains tax on sale, exchange or disposition of real property located in the Philippines is now at 5% based on the selling price or market value thereof, whichever is higher; 2.2 - The tax applies not only to ordinary sale transaction but also to pacto de retro sales and other forms of conditional sales. This accordingly includes mortgage foreclosure sales. casia 2.3 - All classes of individuals are henceforth covered by the 5% capital gains tax. Accordingly, for purposes of this tax all individuals, whether natural or juridical (estates and trusts), whether citizens of the Philippines or aliens, whether residents or non-residents, business, trade or practice of profession in the Philippines, have been placed under this uniform capital gains tax procedure. 3. In view of the foregoing, RMO No. 33-81, as amended by RMO No. 18-82 are hereby revoked. Henceforth, no certification authorizing transfer of title to real property classified as capital asset sold by an individual thru a mortgage foreclosure sale, shall be issued without pre-payment of the capital gains tax, including the corresponding documentary stamp tax. Procedures for the tax determination shall be as follows: 3.1 - Capital gains tax . - On the premise that the amount representing the capital gains tax forms part or is tacked with the real property which already is under the control and custody of the financial institution as mortgagee-transferee, the said financial institution shall pay the 5% capital gains tax based on the selling price shown in the mortgage foreclosure sale . 3.2 - If the fair market value of the real property is more than the selling price shown in the mortgage foreclosure sale, the capital gains tax shall be levied in the following manner: (i) The financial institution shall pay 5% capital gains tax based on the selling price shown in the mortgage foreclosure sale. (ii) The balance of the capital gains tax based on 5% of the excess of the fair market value of the real property over the selling price shown in the mortgage foreclosure sale instrument, shall be levied directly against the mortgagor-transferor. For this purpose, the financial institution shall furnish the Revenue District Office concerned with: (1) The name of the debtor-mortgagor, his legal residence or principal place of business; (2) Amount of loan; (3) Fair market value of the real property mortgaged; and (4) Copy of the deed of real estate mortgage, and the certificate of sale executed by the Sheriff. 3.3 - The capital gains tax paid by the financial institution under the foregoing tax procedures shall be considered paid for and in behalf of the mortgagor-transferor in the light of the premise stated in paragraph 3.1 hereof. 3.4 - Documentary stamp tax . - The financial institution shall be levied with the corresponding documentary stamp tax based on the selling price shown in the mortgage foreclosure sale or fair market value of the real property, whichever is the higher amount. cdt 3.5 - Certification . - Upon payment by the mortgagee financial institution of (i) the capital gains tax, based on 5% of the selling price shown in the mortgage foreclosure sale instrument, and (ii) the documentary stamp tax computed pursuant to paragraph 3.4, the Revenue District Officer concerned shall issue a certification about such payments and shall authorize transfer of title to the real property in the name of the said financial institution. 3.6 - Post certification . - If the fair market value of the real property is higher than the selling price shown in the mortgage foreclosure sale instrument, the Revenue District Officer concerned shall thereupon cause the assessment of the additional 5% capital gains tax on the excess of the fair market value of the property over its declared selling price, to be levied directly against the mortgagor-transferor. acd 4. Limited applicability . - The foregoing procedures shall be applicable only (i) if the debtor-mortgagor is an individual (natural or juridical) and (ii) if the real property involved is classified as capital asset. 5. Effectivity . - On August 28, 1986 all representatives of the concerned financial entities were called for a conference at the Office of the Commissioner of Internal Revenue for purposes of these new procedures, particularly for the revocation of RMO No. 33-81 and RMO No. 18-82. This Order is a culmination of the said official conference. casia Since there is already due notice to all concerned about this matter, this Memorandum Order shall take effect immediately on the date this Order is issued (September 3, 1986) as an exception to the provisions of Revenue Memorandum Circular No. 20-86. (SGD.) BIENVENIDO A. TAN, JR. Commissioner