BIR Ruling [DA-143-98]

April 17, 1998 BIR RULING [DA-143-98] Bautista Picazo Buyco Tan & Fider 8/F, Singapore Airlines Building 138 H.V. Dela Costa Street, Salcedo Village Makati City Attention: Atty . Antonio A . Picazo and Atty . Charlie C . Yalung Gentlemen : This refers to your letter dated October 27, 1997 stating that your client, Fort Bonifacio Development Corporation (FBDC) , is the owner/developer of a specifically controlled and planned new city subdivision project known as the Global City which is located at Fort Bonifacio, Taguig, Metro Manila; that Global City consists of 214 hectares of land covered by Original Certificate of Title No. SP-001; that it is being developed pursuant to the government-approved Fort Bonifacio Global City Master Plan (Master Plan) in close coordination with the Bases Conversion and Development Authority which partly owned FBDC ; that based on the Master Plan, FBDC started ground developments in the Global City ; that it contracted the services of geodetic engineers to prepare the Global City's subdivision plan ; that this subdivision plan, known as PCS-00-007463, was approved by the Land Management Services (LMS) of the Department of Environment and Natural Resources ; that based on this approved subdivision plan, the Registry of Deeds of Rizal issued transfer certificates of title corresponding to each lot delineated in the said Global City subdivision plan ; that FBDC sold to Primetown Property Group, Inc . (Primetown) subdivision Lot Nos. 8 and 9 of Block No. 1 of PCS-00-007463; that these lots are presently covered by TCT Nos. 28827 and 28828 of the Registry of Deeds of Rizal in the name of Primetown ; that pursuant to the Deed of Absolute Sale between them, respecting the said Lot Nos. 8 and 9 of Block No. 1 of PCS-00-007463, FBDC delivered to Primetown physical possession of two (2) lots which were physically delineated on the ground of the Global City and which supposedly represented the lots described in said PCS-00-007463 and TCT Nos. 28827 and 28828; that the parties paid the pertinent taxes due on each of the aforedescribed conveyances of the said two (2) Global City subdivision lots; that after the delivery of the physical possession of the said two (2) lots to it, Primetown started its own development works (e.g., deep excavations) of the ground; that FBDC however, recently discovered that there is a variance between the technical description of the boundaries of the aforestated two (2) subdivision lots as appearing in the lots' respective transfer certificates of title on the one hand, and the technical description of the boundaries of the two (2) lots as being actually occupied and developed on the ground by Primetown on the other, i.e, the technical description in the transfer certificates of title of the lots do not correspond with the physical boundaries of the two (2) subdivision lots in the Global City ; that in order to eliminate in a most expeditious way this variance between the technical description as appearing on the respective transfer certificates of title of the lots and the physical boundaries of the lots and in order to avoid possible confusion and litigation respecting the boundaries of the lots. FBDC and Primetown , agreed to resort to a two-party exchange or swapping of equivalent small portions of their respective adjoining lots; that on October 17, 1997, a Memorandum of Agreement was entered into between FBDC and Primetown , in order to implement the aforedescribed adjustment in the respective transfer certificates of title of the subdivision lots, whereby the parties thereto agreed to exchange among themselves the specified sublots of the abovementioned Global City subdivision lots; and that this two-party exchange or swapping of sublots under the Memorandum of Agreement will involve no monetary consideration and the parties will not get anything fundamentally different from what each already had prior to the exchange; that upon completion of the two-party exchange, FBDC and Primetown will have lots with equivalent areas, shape and relative location as their old lots; that the only change will be the technical description of the lots as appearing in their respective transfer certificates of title which shall correspond to the boundaries of the lots as physically delineated from the ground of the Global City ; that in order to identify the portions of the lots which Primetown shall exchange with FBDC, Primetown had its two (2) lots subdivided, with the affected portions being described as small sublots, viz.: LLjur "1) Primetown's Lot No. 8, Block No. 1, PCS-00-007463, covered by TCT No. 28827 was subdivided, under PSD-00-046484 (or Survey Plan No. E of the attached Memorandum of Agreement) into Lot Nos. 8-A, 8-B, 8-C and 1-D; and "2) Primetown's Lot No. 9, Block No. 1, PCS-00-007463, covered by TCT No. 28828, was subdivided, under PSD-00-046485 (or Survey Plan No. D of the attached Memorandum of Agreement) into Lots 9-A, 9-B, 9-C and 9-D." that these lots belonging to FBDC in the Global City , which it undertakes to exchange with the sublots of Primetown in accordance with the Memorandum of Agreement are Lot Nos. 8, and 11, Block No. 1 of PCS-00-007928 and portions of Lot Nos. 9 of Block No. 1 and Reserved Lot No. 11 of PCS-00-007928; and that PCS-00-007928 which superseded FBDC 's earlier PCS-00-007-463 were further subdivided into, viz: 1) Lot No. 9, Block No. 1 of PCS-00-007928 was further subdivided into Lots No. 9-A and 9-B under PSD-00-046483 (or Survey Plan No. I of the attached Memorandum of Agreement); and 2) Reserved Lot No. II of PCS-00-007928 was, likewise, further subdivided into Reserved Lot Nos. 11-A and 11-B under PSD-00-046482 (or Survey Plan No. J of the Memorandum of Agreement). and that under the aforesaid Memorandum of Agreement , the parties shall make the following exchanges of sublots: "A, FBDC to Primetown . FBDC shall convey and transfer, by way of exchange of sublots, its ownership over the following sublots to Primetown : "Lot No. 9-A, of PSD-00-046483 with an area of 221 sq.m., more or less; "Reserved Lot No. 11-A PSD-00-046482 with an area of 461 sq.m., more or less; "Lot No. 11, Block No. 1 of PCS-00-007928 with an area of 113 sq.m., more or less; and "Lot No. 8, Block No. 1 of PCS-00-007928 with an area of 203 sq.m., more or less. B. Primetown to FBDC . Primetown shall convey and transfer, by way of exchange of sublots, its ownership over the following sublots to FBDC : "Lot No. 9-C PSD-00-046485 with an area of 44 sq.m., more less; "Lot No. 9-D PSD-00-046485 with an area of 274 sq.m., more or less; "Lot No. 8-B PSD-00-046484 with an area of 100 sq.m., more or less; "Lot No. 8-C PSD-00-046484 with an area of 525 sq.m., more or less; and "Lot No. 8-D PSD-00-046484 with an area of 55 sq.m., more or less; Based on the foregoing representations, you now request for a ruling that the described exchanges of adjoining small portions of subdivisions lots in Global City subdivision project by and among FBDC and Primetown , are exempt from the payment of the corresponding taxes due on said exchange transaction, because while there were swapping or exchanges of real properties, no consideration was involved nor did the parties derive any gain resulting from the aforementioned exchanges. In reply, please be informed that since in the instant case, there is no actual sale, exchange or disposition of real properties, but just a mere exchange of adjoining the small portions of subdivision lots in the Global City subdivision project, coupled with the fact that there was no consideration involved and that the parties thereto will not get anything fundamentally different from what each already had prior to the exchange but which was resorted merely to correct the errors in the technical description of the said subdivision lots as appearing in the lots' respective transfer certificates of title in order to eliminate the variance between the technical description of the said subdivision lots as appearing in the lots' respective transfer certificates of title versus what was delineated from the ground, this Office is of the opinion, as it hereby holds that the aforementioned exchanges of realties between FBDC and Primetown are not subject to the creditable withholding tax prescribed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, implementing Section 50 (b) of the Tax Code, as amended [now Section 57 (B) of the Tax Code of 1997]. (BIR Ruling No. 355 dated December 16, 1992) Moreover, the said Memorandum of Agreement executed for the purpose is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended [also Sec. 196 of the Tax Code of 1997]. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the Tax Code, as amended by R.A. 7660 [also Sec. 188 of the Tax Code of 1997]. (BIR Ruling Nos. 355-2 dated December 16, 1992; 27-93 dated January 15, 1993) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. LibLex Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)