BIR Ruling [DA-122-02]

July 23, 2002 BIR RULING [DA-122-02] 24 (D) (1); 196; 188 DA-282-97; UN-020-98 Office of the Governor Province of Pangasinan Lingayen, Pangasinan Attention: Atty. Geraldine U. Baniqued Provincial Legal Officer Gentlemen : This refers to your letter dated November 8, 2001, which was indorsed to this Office by the Regional Director of Revenue Region No. 1 elated February 6, 2002, requesting for exemption from capital gains tax and documentary stamp tax on the swapping of real properties between the Provincial Government of Pangasinan (Provincial Government, for brevity) and the spouses Federico Peralta and Fidela Castro (Peralta ). It is represented that the titled lot of the Peralta spouses is somewhere in between the hospital facilities of the hospital; that in order that health services of the hospital will not be disturbed, the parties agreed it wise to exchange the titled lot of the Peralta spouses to a vacant portion of the lot owned by the hospital which is equal in area; that Authorization by the Sangguniang Panlalawigan was granted to the Governor to enter into an agreement with the spouses and the corresponding Deed of Exchange was executed by the parties on October 11, 2001; that the reason behind the transaction, was simply not to disrupt delivery of health services and to avoid a long and tedious court litigation; that there was no monetary consideration in the transaction; and that the transaction was subjected to capital gains tax in the amount of P121,986.00. In reply, please be informed that Section 24 (D)(1) of the Tax Code of 1997 provides that capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher. Such being the case, both exchanging parties i.e. , the Provincial Government and spouses Peralta are subject separately and distinctly to capital gains tax based on the fair market value or zonal value of the properties whichever is higher. Moreover, pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value or zonal value whichever is higher. (BIR Ruling No. 029-96 dated February 27, 1996, as reiterated in BIR Ruling No. DA-282-97 dated August 20, 1997) Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service