BIR Ruling [DA-159-01]

September 10, 2001 BIR RULING [DA-159-01] 24 (D) (1); 196 DA-145-2000 Intercontinental Development Corporation Room 426, Makati Stock Exchange Building Ayala Avenue, Makati City Attention: Ms. Cecilia R. Patricio AVP-Tax Division Gentlemen : This refers to your letter dated August 23, 2000 requesting for a confirmation of your opinion that the swapping of lots by and between Spouses Daniel and Maria Luisa Vasquez and Intercontinental Development Corporation (ICDC), as evidenced by a Memorandum of Agreement is not subject to capital gains tax, expanded withholding tax and documentary stamp tax. It appears that Spouses Daniel and Maria Luisa Vasquez are the true, lawful and registered owners of a parcel of land situated at Barangay Bagbagan, Muntinlupa covered by Transfer Certificate of Title No. 161035; that ICDC is the successor-in-interest of La Paz Investment Corporation by virtue of an Agreement executed on July 1, 1981 covering the development of several parcels of land adjoining the parcel of land owned by the aforesaid spouses which now comprise the Susana Heights Subdivision, Muntinlupa City; that in the construction of a road known as Susana Drive, which is being undertaken by ICDC, a portion of the Spouses Vasquez' property consisting of Three Hundred Forty Three (343) sq.m., more or less, has been covered and encroached upon without the knowledge and consent of the spouses; that in order to avoid any possible dispute arising out of ICDC's encroachment upon the spouses' property, ICDC has offered to replace the affected area of 343 sq.m. with an equal area of 343 sq.m. of ICDC's property; that in consideration of the foregoing premises of the agreement, the parties mutually stipulated the following: cDTIAC 1. Spouses Vasquez agree to waive, renounce, relinquish and quitclaim in favor of ICDC, its successors-in-interest and assign, any and all their rights, interest and participation and title in and over that portion of Spouses Vasquez' property, on "where is as is" basis; 2. In consideration of Spouses Vasquez' agreement to assign and transfer the aforesaid affected area and encroached portion, ICDC shall likewise assign, transfer and convey to Spouses Vasquez their successors-in-interest and assigns, any and all rights, title, interest and participation in and over a parcel of land; 3. Spouses Vasquez shall take and ICDC shall deliver to the former upon execution of the above-stated agreement, absolute and actual possession of the equivalent area in consideration and as replacement of the portion of Spouses Vasquez' property taken by ICDC as part of the roadway constructed by it; 4. ICDC represents and warrants that the title to the aforementioned replacement area shall be transferred and registered in the name of Spouses Vasquez for the account of ICDC and that Spouses Vasquez shall enjoy absolute ownership, use and utilization thereof for such purpose as they may deem necessary; 5. In the event, ICDC fails to and/or refuses to comply with any and all terms and conditions stipulated in the Memorandum of Agreement, said agreement shall be automatically cancelled and the Spouses Vasquez shall have the right to automatically recover that portion taken by ICDC as part of the roadway by segregating such portion encroached upon from the Susana Drive; and 6. ICDC undertakes and obligates to completely implement the Agreement and all expenses involved shall be borne by it. In reply, please be informed that since in the instant case, there is no actual sale, exchange or voluntary disposition of real properties, but just a mere exchange without monetary consideration, and considering that ICDC's transfer is made merely for the purpose of replacing or substituting the property encroached upon by it and will not result in any way to an increase in wealth or income on either parties, the exchange therefore of realties by and between ICDC and Spouses Vasquez is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98, implementing Section 57 of the Tax Code of 1997. The said swapping of real properties is likewise not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of the said Memorandum of Agreement 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-145-2000 dated March 10, 2000) 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. EACTSH Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group