December 20, 2004

BLGF MEMORANDUM CIRCULAR NO. 018-04

TO : All Regional Directors for Local Government Finance;

Provincial, City and Municipal Assessors and Treasurers;
and Others Concerned

SUBJECT : Payment of Capital Gains Tax Prior to the

Issuance/Transfer of Tax Declarations of Real Properties
Conveyed Whether Previously Registered or Unregistered

For the information and guidance of all concerned, quoted hereunder in toto
is the opinion/ruling rendered by this Bureau as embodied in its letter dated
October 27, 2004, copy attached, addressed to Mr. Peter D. Baluyan,
OIC-Regional Director, BLGF Regional Office, Region I, re. request of Honorable
Commissioner Guillermo L. Parayno, Jr., Bureau of Internal Revenue (BIR),
Quezon City, to issue a directive concerning the issuances made by Mr. Orlando
Mina (then OIC-Regional Director of Region I), that "Tax Declaration can be
issued immediately without necessarily requiring the payment of Capital Gains
Tax, upon compliance/submission of other reasonable requirements in order to
facilitate collection of real property taxes," to wit:

"This refers to the letter dated June 15, 2004 of Honorable

Commissioner Guillermo L. Parayno, Jr., Bureau of Internal Revenue
(BIR), Quezon City, requesting the Bureau of Local Government Finance
(BLGF) to issue a directive concerning the letters both dated April 29,
2004, of Mr. Orlando Mina (then OIC-Regional Director thereat),
addressed to the OIC-Provincial Assessor of Ilocos Sur for dissemination
to all Municipal Assessors within his jurisdiction, and to the City Assessor
of Urdaneta City, wherein he quoted the Decision of the Supreme Court
(SC) Case promulgated on April 9, 2003, entitled Chua vs. Court of
Appeals, G.R. No. 119255, which is reproduced hereunder:

'On Capital Gains Tax.

'The buyer has more interest in having the capital

gains tax paid immediately since this is a pre-requisite to
the issuance of a new Torrens title in his name.
Nevertheless, as far as the government is concerned, the
capital gains tax remains a liability of the seller since it is a
tax on the seller's gain from the sale of the real estate.
Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 1
 Payment of the capital gains tax, however, is not a
pre-requisite to the transfer of ownership to buyer. The
transfer of ownership takes effect upon the signing and
notarization c f the deed of absolute sale. The recording of
the sale with the proper Registry of Deeds and the transfer
of the certificate of title in the name of the buyer are
necessary only to bind third parties to the transfer of
ownership. As between the seller and the buyer, the transfer
of ownership takes effect upon the execution of a public
instrument conveying the real estate. Registration of titles,
does not confer ownership on the buyer. Such registration
or issuance of a new certificate of title is not one of the
modes of acquiring ownership. (CHUA vs. COURT OF
APPEALS, G.R. 119255, 9 April 2003)", IBP Journal, Vol.
XXIX, No. I, 1st and 2nd Quarters 2003, p. 163.'" trdcd2004

"Based on the foregoing portion of the SC Decision, Mr. Mina

made the following directive to the Provincial Assessor of Ilocos Sur:

"From the aforequoted decision on Capital Gains Tax, it can be

deduced very clearly that Tax Declaration can be issued immediately
without necessarily requiring the payment of Capital Gains Tax, upon
compliance/submission of other reasonable requirements in order to
facilitate collection of real property taxes. (Emphasis supplied)

"Relatedly, and in compliance with the same directive he issued,

the Provincial Assessor of La Union issued a memorandum dated May 27,
2004 to all the Municipal Assessors under his jurisdiction, directing them,
that: 'effective immediately, all transactions on unregistered properties
involving transfer shall be acted upon with dispatch without the need of
requiring Certificate Authorizing Registration (CAR) from the BIR nor
registration with the Registry of Deeds.'

"Hence, the Honorable Commissioner reacted with the following

arguments, to wit:

"1. There is no dispute that as a matter of civil law, the payment of the
capital gains tax is not a pre-requisite to the transfer of ownership
from the seller to the buyer. But that does not mean that the taxes
attendant to that transfer will no longer be paid or that the
government officials involved in the process of transfer of
ownership no longer ensure the collection of taxes;

"2. P.D. No. 1529 provides that no deed, conveyance, mortgage, lease
or other voluntary instruments affecting untitled lands shall be
valid, except as between the parties, unless the instrument shall
have been entered in the Primary Entry Book and the Registration

Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 2
 Book for properties covered by Act 3344 of the Registry of Deeds.

Thus, no registration of any document transferring such untitled

property shall be effected by the City or Municipal Assessor's
Office unless proof is presented that the document of transfer has
already passed through the Register of Deeds; and

"3. Revenue Regulations No. 24-02 makes it a duty of City and

Municipal Assessors to indicate at the back of newly issued Tax
Declaration the information contained in the TCL/CAR such as the
CAR Number, date of issuance of CAR, TIN of the transferor,
name of transferor, type of taxes paid, the amount, official receipt
number/validation number and their respective dates. The TIN of
the transferee shall also be indicated on the face of the newly
issued tax declaration.

"We agree with the Honorable Commissioner.

"A careful reading of the abovementioned SC Decision reveals that

it pertains to the case involving the sale of real estate wherein the Court,
among others, held that: "Payment of the capital gains tax, however, is not
a pre-requisite to the transfer of ownership to the buyer," which this
Bureau believes has no bearing on the validity of the Deed of Sale effected
by both parties. However, in reading the full text of the said SC Decision,
it can be deduced that the Court likewise ruled that, in the transfer of title,
the payment of capital gains tax is a pre-requisite in the issuance of new
title.

"The Court further clarified that:

"Customarily, in the absence of a contrary

agreement, the submission by an individual seller to the
buyer of the following papers would complete a sale of real
estate: (1) owner's duplicate copy of the Torrens title, (2)
signed deed of absolute sale; (3) tax declaration; and (3)
latest realty tax receipt. The buyer can retain the amount
for the capital gains tax and pay it upon authority of the
seller, or the seller can pay the tax, depending on the
agreement of the parties. (Emphasis ours)

"Evidently, after the sale of real estate, depending on the

agreement between the buyer and the seller, it is necessary to pay the
corresponding capital gains tax to the BIR for the issuance of the
Certificate Authorizing Registration (CAR) for presentation to and as a
requirement of the Register of Deeds for the transfer of the title of the
subject property from the former owner to the new owner.

"Relatedly, the BLGF under the 2nd Indorsement dated May 26,
Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 3
 1993, copy enclosed, treating on a similar subject matter, made the
following clarification.

'Accordingly, unless the Deed of Sale executed . . .,

conveying the . . . real properties . . . is finally registered
with the Register of Deeds . . ., that Office could not effect
the cancellation and transfer of the . . . tax declarations.

'It is understood that the . . . requirements . . .,

should likewise be complied with, viz:

'1. That the real property taxes due on the subject lot be
fully paid;

'2. That the corresponding tax on the transfer of

ownership has been paid;

'3. That the certification of payment of the capital gains

tax issued by the Bureau of Internal Revenue is
presented to that Office.' (Emphasis ours)

"Clearly, therefore, the issuance/transfer of tax declarations of real

properties conveyed, whether previously registered or unregistered would
require the payment of the capital gains tax.

"In view hereof, and although this Office recognizes the good
intentions of Mr. Mina, of facilitating the immediate collection of local
taxes, i.e., real property taxes, as expressed under your letter dated June
23, 2004 addressed to Atty. Jose Mario C. Bunag, Deputy Commissioner,
Legal and Inspection Group, BIR, we believe that the issuance of tax
declarations on the basis of deeds of conveyance not registered with the
Registry of Deeds and without prior payment of the capital gains tax is
BEREFT OF ANY LEGAL BASIS.

"We would like to remind that internal revenues which include the
capital gains tax being collected by the BIR are the very sources of the
Internal Revenue Allotment (IRA) to which a great majority of the LGUs
rely heavily. A considerable decline in the collection efficiency of the BIR
will surely affect the IRA allocation of LGUs.

"In view of the foregoing, you are hereby ADVISED TO RECALL

the abovementioned letters dated April 29, 2004 and other similar
issuances in this regard, of the then OIC-Regional Director, and TO
ORDER the Provincial Assessor of La Union, San Fernando City TO
DESIST from implementing the subject Memorandum dated May 27,
2004."

Accordingly, issuance/transfer of tax declarations of real properties

Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 4
 conveyed, whether previously registered or unregistered would require, aside from
the payment of the corresponding realty tax and transfer tax, the payment of the
capital gains tax, to the Bureau of Internal Revenue (BIR).

The Provincial Assessors and Treasurers are hereby instructed to

disseminate the contents of this Circular, including the attachments to the
Municipal Assessors and Treasurers within their respective jurisdiction.

(SGD.) MA. PRESENTACION R. MONTESA

Executive Director

ATTACHMENT

October 27, 2004

Mr. Peter D. Baluyan

OIC-Regional Director
BLGF Regional Office-Region I
2/F Mabanag Justice Hall Bldg.
Gov. Luna Street, San Fernando City
La Union

Sir:

This refers to the letter dated June 15, 2004 of Honorable Commissioner
Guillermo L. Parayno, Jr., Bureau of Internal Revenue (BIR), Quezon City, requesting
the Bureau of Local Government Finance (BLGF) to issue a directive concerning the
letters both dated April 29, 2004, of Mr. Orlando Mina (then OIC-Regional Director
thereat), addressed to the OIC-Provincial Assessor of Ilocos Sur for dissemination to all
Municipal Assessors within his jurisdiction, and to the City Assessor of Urdaneta City,
wherein he quoted the Decision of the Supreme Court (SC) Case promulgated on April 9,
2003, entitled Chua vs. Court of Appeals, G.R. No. 119255, which is reproduced
hereunder:

"On Capital Gains Tax.

'The buyer has more interest in having the capital

gains tax paid immediately since this is a pre-requisite to
the issuance of a new Torrens title in his name.
Nevertheless, as far as the government is concerned, the
capital gains tax remains a liability of the seller since it is a
tax on the seller's gain from the sale of the real estate.
Payment of the capital gains tax, however, is not a
Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 5
 pre-requisite to the transfer of ownership to buyer. The
transfer of ownership takes effect upon the signing and
notarization of the deed of absolute sale. The recording of
the sale with the proper Registry of Deeds and the transfer
of the certificate of title in the name of the buyer are
necessary only to bind third parties to the transfer of
ownership. As between the seller and the buyer, the transfer
of ownership takes effect upon the execution of a public
instrument conveying the real estate. Registration of titles,
does not confer ownership on the buyer. Such registration
or issuance of a new certificate of title is not one of the
modes of acquiring ownership. (CHUA vs. COURT OF
APPEALS, G.R. 119255, 9 April 2003)", IBP Journal, Vol.
XXIX, No. I, 1st and 2nd Quarters 2003, p. 163.'" SCaEcD

Based on the foregoing portion of the SC Decision, Mr. Mina made the following
directive to the Provincial Assessor of Ilocos Sur:

"From the aforequoted decision on Capital Gains Tax, it can be

deduced very clearly that Tax Declaration can be issued immediately
without necessarily requiring the payment of Capital Gains Tax, upon
compliance/submission of other reasonable requirements in order to
facilitate collection of real property taxes." (Emphasis supplied)

Relatedly, and in compliance with the same directive he issued, the Provincial
Assessor of La Union issued a memorandum dated May 27, 2004 to all the Municipal
Assessors under his jurisdiction, directing them, that: "effective immediately, all
transactions on unregistered properties involving transfer shall be acted upon with
dispatch without the need of requiring Certificate Authorizing Registration (CAR) from
the BIR nor registration with the Registry of Deeds."

Hence, the Honorable Commissioner reacted with the following arguments, to

wit:

1. There is no dispute that as a matter of civil law, the payment

of the capital gains tax is not a pre-requisite to the transfer of ownership
from the seller to the buyer. But that does not mean that the taxes attendant
to that transfer will no longer be paid or that the government officials
involved in the process of transfer of ownership no longer ensure the
collection of taxes;

2. P.D. No. 1529 provides that no deed, conveyance, mortgage,

lease or other voluntary instruments affecting untitled lands shall be valid,
except as between the parties, unless the instrument shall have been
entered in the Primary Entry Book and the Registration Book for
properties covered by Act 3344 of the Registry of Deeds. Thus, no
registration of any document transferring such untitled property shall be
Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 6
 effected by the City or Municipal Assessor's Office unless proof is
presented that the document of transfer has already passed through the
Register of Deeds; and IDETCA

3. Revenue Regulations No. 24-02 makes it a duty of City and

Municipal Assessors to indicate at the back of newly issued Tax
Declaration the information contained in the TCL/CAR such as the CAR
Number, date of issuance of CAR, TIN of the transferor, name of
transferor, type of taxes paid, the amount, official receipt
number/validation number and their respective dates. The TIN of the
transferee shall also be indicated on the face of the newly issued tax
declaration.

We agree with the Honorable Commissioner.

A careful reading of the abovementioned SC Decision reveals that it pertains to

the case involving the sale of real estate wherein the Court, among others, held that:
"Payment of the capital gains tax, however, is not a pre-requisite to the transfer of
ownership to the buyer," which this Bureau believes has no bearing on the validity of the
Deed of Sale effected by both parties. However, in reading the full text of the said SC
Decision, it can be deduced that the Court likewise ruled that, in the transfer of title, the
payment of capital gains tax is a pre-requisite in the issuance of new title.

The Court further clarified that:

"Customarily, in the absence of a contrary agreement, the

submission by an individual seller to the buyer of the following papers
would complete a sale of real estate: (1) owner's duplicate copy of the
Torrens title; (2) signed deed of absolute sale; (3) tax declaration; and (3)
latest realty tax receipt. The buyer can retain the amount for the capital
gains tax and pay it upon authority of the seller, or the seller can pay the
tax, depending on the agreement of the parties. (Emphasis ours)

Evidently, after the sale of real estate, depending on the agreement between the
buyer and the seller, it is necessary to pay the corresponding capital gains tax to the BIR
for the issuance of the Certificate Authorizing Registration (CAR) for presentation to and
as a requirement of the Register of Deeds for the transfer of the title of the subject
property from the former owner to the new owner. HICcSA

Relatedly, the BLGF under the 2nd Indorsement dated May 26, 1993, copy
enclosed, treating on a similar subject matter, made the following clarification:

"Accordingly, unless the Deed of Sale executed . . ., conveying the

. . . real properties . . . is finally registered with the Register of Deeds . . .,
that Office could not effect the cancellation and transfer of the . . . tax
declarations.

Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 7
 "It is understood that the . . . requirements . . ., should likewise be
complied with, viz:

"1. That the real property taxes due on the subject

lot be fully paid;

"2. That the corresponding tax on the transfer of

ownership has been paid;

"3. That the certification of payment of the capital

gains tax issued by the Bureau of Internal Revenue is
presented to that Office." (Emphasis ours)

Clearly, therefore, the issuance/transfer of tax declarations of real properties

conveyed, whether previously registered or unregistered would require the payment of the
capital gains tax.

In view hereof, and although this Office recognizes the good intentions of Mr.
Mina, of facilitating the immediate collection of local taxes, i.e., real property taxes, as
expressed under your letter dated June 23, 2004 addressed to Atty. Jose Mario C. Bunag,
Deputy Commissioner, Legal and Inspection Group, BIR, we believe that the issuance of
tax declarations on the basis of deeds of conveyance not registered with the Registry of
Deeds and without prior payment of the capital gains tax is BEREFT OF ANY LEGAL
BASIS. EDHCSI

We would like to remind that internal revenues which include the capital gains tax
being collected by the BIR are the very sources of the Internal Revenue Allotment (IRA)
to which a great majority of the LGUs rely heavily. A considerable decline in the
collection efficiency of the BIR will surely affect the IRA allocation of LGUs.

In view of the foregoing, you are hereby ADVISED TO RECALL the

abovementioned letters dated April 29, 2004 and other similar issuances in this regard, of
the then OIC-Regional Director; and TO ORDER the Provincial Assessor of La Union,
San Fernando City TO DESIST from implementing the subject Memorandum dated May
27, 2004.

Very truly yours,

(SGD.) MA. PRESENTACION R.

MONTESA
Executive Director

October 27, 2004

Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 8
 The Honorable Commissioner
Bureau of Internal Revenue
Quezon City

Sir:

This refers to your letter dated June 15, 2004, requesting this Bureau to issue a
directive to Dir. Orlando L. Mina, OIC-Regional Director, BLGF Regional Office,
Region I, San Fernando City, La Union, concerning his letters both dated April 29, 2004,
addressed to the OIC-Provincial Assessor of Ilocos Sur for dissemination to all Municipal
Assessors within his jurisdiction, and to the City Assessor of Urdaneta City, re. payment
of Capital Gains Tax as contained under the Supreme Court (SC) Decision entitled Chua
vs. Court of Appeals, G.R. No. 119255.

In this connection, enclosed is a copy of our letter of same date, addressed to Mr.
Peter D. Baluyan, current OIC-Regional Director of Region I, which reads in part, as
follows:

"A careful reading of the abovementioned SC Decision reveals that it

pertains to the case involving the sale of real estate wherein the Court, among
others, held that: "Payment of the capital gains tax, however, is not a pre-requisite
to the transfer of ownership to the buyer," which this Bureau believes has no
bearing on the validity of the Deed of Sale effected by both parties. However, in
reading the full text of the said SC Decision, it can be deduced that the Court
likewise ruled that, in the transfer of title, the payment of capital gains tax is a
pre-requisite in the issuance of new title.

". . .

"In view hereof, and although this Office recognizes the good intentions of
Mr. Mina, of facilitating the immediate collection of local taxes, i.e., real property
taxes, as expressed under your letter dated June 23, 2004 addressed to Atty. Jose
Mario C. Bunag, Deputy Commissioner, Legal and Inspection Group, BIR, we
believe that the issuance of tax declarations on the basis of deeds of conveyance
not registered with the Registry of Deeds and without prior payment of the capital
gains tax is BEREFT OF ANY LEGAL BASIS.

"We would like to remind that internal revenues which include the capital
gains tax being collected by the BIR are the very sources of the Internal Revenue
Allotment (IRA) to which a great majority of the LGUs rely heavily. A
considerable decline in the collection efficiency of the BIR will surely affect the
IRA allocation of LGUs.

"In view of the foregoing, you are hereby ADVISED TO RECALL the
abovementioned letters dated April 29, 2004 and other similar issuances in this
regard of the then OIC-Regional Director; and TO ORDER the Provincial
Assessor of La Union, San Fernando City TO DESIST from implementing the
Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 9
 subject Memorandum dated May 27, 2004."

We regret such misinterpretation of the abovementioned SC Decision.

Cordial regards.

Very truly yours,

(SGD.) PRESENTACION R MONTESA

Executive Director

Copyright 1994-2019 CD Technologies Asia, Inc. Local Autonomy and Local Government 2019 10