BIR Ruling [DA-146-02]

September 03, 2002 BIR RULING [DA-146-02] 24 (D) (1); 196 DA-335-98 AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Atty. Rodolfo G. Rabaja Acting Head, Legal Department Gentlemen : This refers to your letter dated December 20, 1999 requesting for exemption from the payment of capital gains tax relative to the swapping of real properties to rectify an error effected through a Deed of Exchange made without consideration. Documents submitted disclosed that AFP Retirement and Separation Benefits System (AFPRSBS) is a pension fund duly organized and existing under and by virtue of Presidential Decree 361, as amended; that Messrs. Melanio Z. Bullanday, Florencio A. Jaen, Alejandro D. Coloma, Reynante L. Buduan, Noelito V. Barrios, Rogelio O. Megino, Francisco C. Bautista and Ms. Sally V. Evangelista bought parcels of land from AFPRSBS located at the San Mateo Housing Project, Bo. Nangka, San Mateo, Rizal; that the transfer of title for each of the parcels of land bought by the buyers were effected purposely to facilitate the PAG-IBIG take-out of the in-house financing accommodation granted by AFPRSBS; that after effecting the aforementioned transfer, it was discovered that the issued titles do not correspond to the lot occupied by the registered owner thereof, that it is necessary to execute a document that will effect an exchange of titles among the parties to rectify the error committed and reflect the lots occupied by the registered owners thereof; that a Deed of Exchange was thereafter executed and the parties agreed to exchange titles among themselves, each conveying his title to the actual occupant therefor in the following manner: SALLY V. EVANGELISTA, who is currently occupying Blk. 22, Lot 9, hereby conveys her title (TCT # 117700) covering Lot 16, Blk. 22 with an area of 193 sq.m. in favor of Rogelio O. Megino; ROGELIO O. MEGINO, who is currently occupying Blk. 22, Lot 16, hereby conveys his title (TCT # 116645) covering Lot 15, Blk. 22 with an area of 256 sq.m. in favor of Noelito V. Barrios; NOELITO V. BARRIOS, who is currently occupying Blk. 22, Lot 15, hereby conveys his title (TCT # 116646) covering Lot 14, Blk. 22 with an area of 198 sq.m. in favor of Reynante L. Buduan; REYNANTE L. BUDUAN, who is currently occupying Blk. 22, Lot 14, hereby conveys his title (TCT # 116648) covering Lot 13, Blk. 22 with an area of 198 sq.m. in favor of Alejandro D. Coloma, or; ALEJANDRO D. COLOMA, JR., who is currently occupying Blk. 22, Lot 13, hereby conveys his title (TCT # 117492) covering Lot 12, Blk. 22 with an area of 198 sq.m. in favor of Florencio A. Jaen; FLORENCIO A. JAEN, who is currently occupying Blk. 22, Lot 12, hereby conveys his title (TCT # 118748) covering Lot 11, Blk. 22 with an area of 198 sq.m. in favor of Melanio Z. Bullanday; MELANIO Z. BULLANDAY, who is currently occupying Blk. 22, Lot 11, hereby conveys his title (TCT # 116647) covering Lot 10, Blk. 22 with an area of 198 sq.m. in favor of Francisco C. Bautista; and FRANCISCO C. BAUTISTA, who is currently occupying Blk. 22, Lot 14, hereby conveys his title (TCT # 116648) covering Lot 13, Blk. 22 with an area of 198 sq.m. in favor of Sally V. Evangelista; that the above-named parties renounces and fully relinquishes all rights and claims over the titles erroneously issued to them; and that it is your position that inasmuch as the purpose of the Deed of Exchange is merely to correct the situation and that no gain on the part of the parties to the contract has been realized, the same should be exempted from the payment of capital gains tax or withholding tax as the case may be. ETHIDa In reply, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange is merely to correct a mistake, this Office is of the opinion as it hereby holds that the above-stated exchange of realties by and between the aforesaid parties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 and to the documentary stamp tax under Section 196 of the same Tax Code. However, the fair market value of 58 sq.m. which is the difference in the area received by Noelito V. Barrios being transferred by Rogelio O. Megino is subject to the capital gains tax pursuant to Section 24(D)(1) of the same Tax Code, which provides that a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the same Code, whichever is higher, is hereby imposed upon 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 trust. Moreover, pursuant to Section 196 likewise of the same Code, the aforestated value of 58 sq.m. is subject to the documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher. Moreover, the notarial acknowledgment to the aforesaid Deed of Exchanges is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-335-1998 dated July 21, 1998) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service