Below is a comprehensive overview of Capital Gains Tax (CGT) payment disputes in real property sales in the Philippines. While this article aims to provide a general discussion of legal, tax, and procedural matters, it should not replace professional legal or tax advice. Always consult a qualified lawyer, accountant, or tax professional for guidance specific to your situation.

1. Definition and Legal Framework

1.1 What Is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax imposed on the gains presumed to have been realized by a seller from the sale, exchange, or other disposition of real property. In the Philippines, the capital gains tax rate is 6% on the gross selling price, or the fair market value (FMV) of the property (based on the Bureau of Internal Revenue [BIR] zonal valuation or the local assessor’s valuation), whichever is higher.

1.2 Governing Laws and Regulations

National Internal Revenue Code (NIRC) of 1997, as amended – primarily Sections 24(D)(1) for individual taxpayers and 27(D)(5) for domestic corporations (when the property is considered a capital asset), among others.
BIR Regulations and Revenue Memorandum Circulars – These outline detailed procedures and clarifications regarding the application of capital gains tax.

2. Who Is Primarily Liable to Pay?

2.1 Seller’s Obligation

Under Philippine law and established BIR practice, the seller is principally liable for paying the capital gains tax. The logic is that CGT is a tax on the presumed profit realized by the person disposing of the property.

2.2 Contractual Arrangements

Despite the statutory rule that the seller is responsible, parties to a sale can agree otherwise in their Deed of Absolute Sale or other contracts. Sometimes, the buyer agrees to shoulder the CGT or they agree to split it. However, such contractual arrangements do not change the fact that non-payment of CGT hinders the issuance of the Certificate Authorizing Registration (CAR) by the BIR, which is needed to transfer the title.

3. Common Causes of Disputes

3.1 Disagreement on Who Bears the Tax

Seller’s Perspective: By law, the seller should pay.
Buyer’s Perspective: Some buyers insist on “net price deals” where the seller agrees to pay all taxes to ensure the final acquisition cost is fixed.

3.2 Valuation Issues

Fair Market Value (FMV) vs. Selling Price: The tax base is the higher of the selling price or the zonal/assessor’s valuation. Disputes often arise when there is a significant difference between these amounts.
Undervaluation Concerns: Some sellers understate the selling price in the deed to reduce CGT but may be penalized by the BIR for tax evasion or fraudulent declarations.

3.3 Late or Non-Payment of CGT

If the CGT is not settled within 30 days from the date of notarization of the Deed of Sale (or other modes of transfer), penalties, surcharges, and interest may accrue.
Delays can also cause disputes if the buyer needs the title transferred immediately and the seller has not settled the CGT.

3.4 Changing Market Conditions

If the transaction drags on, the BIR’s zonal valuation might change, potentially increasing the CGT due. Disputes can arise if the parties did not clarify who bears the burden of any increased valuation.

4. Legal and Procedural Considerations

4.1 BIR Filing and Issuance of the CAR

Filing of Return (BIR Form 1706): The seller (or the person liable) files the CGT return within 30 days from the date of notarization.
Payment of Taxes: Payment is made to an Authorized Agent Bank (AAB) or through other approved payment channels.
Submission of Documentary Requirements: Original notarized Deed of Sale, Tax Clearance, and other relevant documents.
Issuance of CAR: Once the tax is fully paid and the documents are in order, the BIR issues a Certificate Authorizing Registration (CAR), allowing the Register of Deeds to transfer the title.

4.2 Penalties for Late Payment or Non-Payment

Failure to pay within 30 days may result in:

Surcharges: Up to 25% or 50% (depending on the nature of the violation).
Interest: 12% per annum (or such rate as may be prescribed) on the unpaid amount.
Compromise Penalties or Criminal Penalties: In extreme cases of tax evasion, criminal charges may be pursued by the BIR.

4.3 Legal Remedies in Case of Disputes

Negotiation and Amicable Settlement: Parties can renegotiate who should bear the additional costs, or address valuation issues.
Mediation or Arbitration: Particularly if the Deed of Sale contains an ADR clause.
Court Litigation: If a dispute cannot be resolved amicably, the aggrieved party may file a case in the Regional Trial Court or pursue administrative remedies (e.g., protest with the BIR, and if denied, appeal to the Court of Tax Appeals).

5. Resolution and Prevention of Disputes

5.1 Clear Contractual Stipulations

Specify Tax Liabilities: The Deed of Absolute Sale or Contract to Sell should clearly identify which party pays the CGT and other expenses such as Documentary Stamp Tax, Transfer Tax, and registration fees.
Consider Market Value Fluctuations: Include provisions addressing potential changes in BIR zonal values during the transaction timeline.

5.2 Proper Valuation and Due Diligence

Obtain Latest Zonal Valuation: Consult the BIR website or the local BIR office to secure the current valuation of the area.
Secure Advance Assessments: Request a preliminary computation from a tax practitioner or the BIR to anticipate the exact tax due.

5.3 Timely Filing and Payment

Pay the CGT within 30 days from the notarization of the deed to avoid penalties.
Complete all documentary requirements promptly to speed up issuance of the CAR.

5.4 Legal Counsel and Professional Advice

Engaging a lawyer, tax consultant, or real estate broker from the outset can prevent misunderstandings, ensure correct documentation, and minimize the risk of disputes.

6. Special Considerations

6.1 Capital Asset vs. Ordinary Asset

If the property is an ordinary asset (e.g., inventory of a real estate dealer), the applicable tax might be the Creditable Withholding Tax (CWT) instead of CGT. Verify the nature of the property to avoid confusion and incorrect filing.

6.2 Sale to Certain Entities or Government

Transfers to government entities for public use may involve special rules regarding taxation and condemnation proceedings.

6.3 Inheritance or Donation

Properties acquired through inheritance or donation are subject to Estate Tax or Donor’s Tax, respectively. However, upon subsequent sale by the beneficiary/donee, CGT rules apply again.

6.4 Foreclosure Sales

Foreclosed properties can involve special processes for tax determination. The “mortgage redemption value” might come into play, and the timeline for CGT payment can differ depending on whether the property is redeemed by the mortgagor.

7. Practical Tips and Common Pitfalls

Do Not Understate the Selling Price: Underreporting is a common pitfall and can lead to penalties or even criminal charges.
Check All Tax Liens or Encumbrances: Ensure the property is free from prior taxes or liens to avoid complications during the transfer.
Secure Tax Advice Early: Minor details in the contract or the property’s classification can significantly affect tax obligations.
Keep Receipts and Official BIR Documents: Always retain official receipts, payment forms, and the final CAR for future reference.

8. Conclusion

Capital Gains Tax payment disputes in property sales typically revolve around who should pay, disagreements about valuation, and delays or failures in meeting tax deadlines. The Philippine law designates the seller as primarily responsible for paying capital gains tax, but contractual stipulations can alter financial arrangements between buyer and seller. Regardless of any private agreement, timely payment and compliance with BIR requirements are crucial to avoid legal complications and secure a smooth transfer of title.

When in doubt—or when complex valuation, legal, or procedural matters arise—consulting an experienced real estate lawyer or tax professional is strongly recommended. Proper due diligence, transparent contractual provisions, and strict adherence to tax filing regulations are the best ways to minimize disputes and ensure a successful property transaction in the Philippines.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. For specific guidance on your situation, please consult a qualified professional.