INTERNAL MEMO

Re
Date

:
:

Transfer of Title of a Condominium Unit with Unpaid Taxes

01 June 2016

Background:
X and his wife, Y, purchased a condominium unit from Z. Z is Ys father. Z bought the
condominium unit from A. X and Y cannot have the title transferred to Zs name because they
were informed that no taxes were actually paid to the BIR for the sale from A to Z and the
Certificate Authorising Registration is a fake.
Queries:
1. Whether X and Y should shoulder the taxes that were not paid on the sale from A to
Z?
2. How can X and Y transfer the property to their names without having to pay the
deficiency taxes? What are the remedies of X and Y (or Z), if any, against A?
Answer and Discussion:
1.

X and Y cannot be made to shoulder the taxes that were not paid by the seller, A, from the sale of
the condominium unit to Z. Section 24(D) of the 1997 National Internal Revenue Code of the
Philippines specifically imposes the burden on paying the taxes on the capital gains presumed to
have been realized from the sale of real property to the seller. In Republic vs. Soriano, 752
SCRA 71 (2015), the Supreme Court held that capital gains tax due on the sale of real property is
a liability for the account of the seller:
Thus, it has been held that since capital gains is a tax on passive
income, it is the seller, not the buyer, who generally would shoulder the
tax. Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated December 18,
2013, constituted the DPWH as a withholding agent to withhold the six percent
(6%) final withholding tax in the expropriation of real property for infrastructure
projects. As far as the government is concerned, therefore, the capital gains
tax remains a liability of the seller since it is a tax on the sellers gain from
the sale of the real estate. [Emphasis supplied]
Likewise, in Chua vs. Court of Appeals, 401 SCRA 54 (2003), the Supreme Court held
that the capital gains tax remains a liability of the seller since it is a tax on the sellers gain from
the sale of the real estate:
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) owners 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.
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 sellers gain
from the sale of the real estate. Payment of the capital gains tax, however, is not
a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership
takes effect upon the signing and notarization of the deed of absolute sale.
[Emphasis supplied]
Thus, in this case, the buyer, Z, or his predecessors-in-interest, X and Y, cannot be
compelled to pay the capital gains tax on the sale of the condominium unit unless a stipulation to
the contrary is embodied in the Contract of Sale between Z and A.
2.

Since the payment of tax i.e. Capital Gains Tax is a prerequisite before a Certificate of
Authorization is issued by the Bureau of Internal Revenue, the following are remedies that Z, or
his predecessors-in-interest, X and Y, can do to transfer the title of the property in their names:
a.
Send a Demand letter to the seller, A, demanding the latter to pay the
capital gains tax and other assessments due to effectuate the transfer of the titles of the
property to and in the buyers name (Z);
b.
File an Action for Specific Performance with Damages to compel the
seller to pay the CGT;
c.
Inform the Bureau of Internal Revenue of the tax evasion of the seller
under the Run After Tax Evaders (RATE) program of the BIR.
The above process, however, is not expedient. If X and Y wants to immediately transfer
the property in their names, then they would have to shoulder the taxes, pay on behalf of A and
file a Collection for Sum of Money with Damages against A.