Stricter rules on transfer of properties
(Revenue Memorandum Order No. 24 and 25-2016, June 7 and 12, 2016)
This Tax Alert is issued to inform all concerned on the stricter rules on the processing of Certificates Authorizing Registration (CAR) and Tax Clearance Certificates (TCL) on transfers of properties.
The guidelines cover transfers of real properties, transfer of shares not traded in the stock exchange, transfers of properties subject to estate, donor’s or documentary stamp tax, and tax-free exchanges pursuant to Section 40 of the Tax Code involving taxes in excess of P1 million and transactions exempt from capital gains tax (CGT)/Expanded Withholding tax (EWT).
In addition to the supporting documents required upon application for the issuance of CARs and TCLs covering sale/transfer/assignment of properties under RMO 15- 2003, the parties (buyer/transferor and seller/transferee) may be subjected to audit/investigation to determine their capacity to hold and/or acquire properties.
The income tax filing of the buyer/seller shall be confirmed from the BIR Integrated Tax System (ITS). If no income tax return has been filed, the buyer/seller shall submit an affidavit why he is not required to file an income tax return, the sources and amount of income earned. He may also be required to submit other proof of sources of funds such as certificates of creditable and final taxes withheld and loan documents.
If the buyer is determined to have no financial capacity to purchase the property:
- The transaction shall be deemed a donation, not a sale. Donor’s tax shall be imposed instead of CGT, and a duly executed deed of donation shall be required.
- The buyer/transferee shall be deemed to have undeclared income and deficiency income tax shall be assessed on the amount of consideration for the transfer which cannot be supported by his financial capacity, in case the seller/transferor is a corporation or a stranger to the buyer/transferee.
If the seller is determined to have no financial capacity to acquire/hold the property being sold:
- The RDO may recommend the issuance of a Letter of Authority.
- The processing of the CAR/TCL shall nevertheless proceed in accordance with RMO 15-2003.
In case of applications for ruling on tax-free exchanges under Section 40, the Law Division shall forward the case to the National Investigation Division (NID) for initiation of an audit/investigation.
