Surprise, Surprise

Once upon a time, four siblings agreed to sell a property they inherited. Not long after that decision, their broker found a buyer.

The buyer conducted their due diligence (procuring certified copies of pertinent documents) and found that everything was in order. They were purchasing the property through a bank loan.

The sellers understood that they would get 20% upfront and the balance (from the bank) only after the title and tax dec were transferred to the buyer's name.

The parties executed a Deed of Absolute Sale. Upon signing, the sellers received the equity portion and a Letter of Guarantee from the buyer's bank. The buyer didn't withhold the payment for capital gains tax and trusted the sellers would be the ones to have this prepared after the computation for taxes had been provided by the BIR.

Upon submission of the pertinent documents to the BIR, the regulator subjected the sale to value-added tax–to the sellers' surprise. It turns out that one of the siblings was registered as a lessor. [Unknowingly, one of the siblings was a lessor for a wet market stall in the province.]

If the sellers agreed to pay for VAT, they would be netting a smaller amount than their target net proceeds, so they contested the assessment.

The sellers argued that the land sold was never used and leased out–which the BIR didn't accept. Then they argued the stall that was rented out for only Php8,000/month and didn't reach the VAT threshold–which the BIR didn't accept either.

After a few weeks of arguing with the regulator, they realized that they'd missed the deadline for the tax payments (i.e., the deadline for CWT is the 10th of the following month vs. CGT, which is 30 days). They were penalized for the non-payment of taxes (which was for millions of pesos). No turning back now.

The buyer eventually became restless and wanted to rescind the sale. But how could they? They'd already signed a Deed of Absolute Sale. Moreover, the siblings had already spent their portions of the proceeds (downpayment for a property and a family vacation).

End of story.

Lessons will be posted tomorrow.