RMO No. 24-2016: Prescribes the investigation of parties in transactions involving transfer/assignment/sale of properties

Key points

1. Transactions covered. Covered transactions include, but are not limited to, those subject to final Capital Gains Tax on real property that is a capital asset, CGT on unlisted stocks, Expanded Withholding Tax on real property that is an ordinary asset, Donor’s Tax, Estate Tax, other taxes including Documentary Stamp Tax, and tax-free transfers under Section 40 of the NIRC.
2. Audit of financial capacity. CAR and Tax Clearance applications are evaluated for possible audit or investigation to determine the parties’ capacity to hold or acquire the property. If capacity is lacking, the RDO may recommend an electronic Letter of Authority (eLA) for approval by the Regional Director.
3. How capacity is shown. The ONETT Team checks the Integrated Tax System that the parties regularly file returns and report enough income. Individuals not required to file an Income Tax Return submit an affidavit stating why, their total annual income, and its source. Returns, creditable or final withholding certificates, and loan documents may be presented.
4. Buyer without capacity. A buyer proven to lack financial capacity is treated as receiving a donation, not a sale. Donor’s Tax applies instead of Capital Gains Tax, and a Deed of Donation is required.
5. Seller without capacity. This does not stop CAR and Tax Clearance processing under RMO No. 15-2003, despite the audit.
6. Tax-free exchange rulings and scope. Applications for a BIR Certification Ruling go to the Law Division in quadruplicate, which forwards to the National Investigation Division (NID) if the transferor lacks capacity. The NID sends a memorandum-request to the Office of the Commissioner. Ruling and CAR/TCL processing continue regardless. The procedures are mandatory for unlisted stock transfers, ONETT transactions with tax payments of at least One Million (P1,000,000), and transactions exempt from CGT/EWT.

Who is affected

• Parties to property and unlisted stock transfers, assignments and sales
• ONETT Teams and RDOs