BIR Ruling [DA-173-98]

April 28, 1998 BIR RULING [DA-173-98] 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 the Bases Conversion and Development Authority (BCDA) subdivision Lot Nos. 3 and 2 of Block No. 13 of PCS-00-007463; that these lots are presently covered by TCT Nos. 29185 and 29184 of the Registry of Deeds of Rizal in the name of BCDA ; that FBDC sold to MPC Lot No. 1, Block 13 of PCS-00-007463; that this lot is presently covered by TCT No. 28990 of the Registry of Deeds of Rizal in the name of MPC ; that pursuant to the Deed of Absolute Sale between FBDC and BCDA , respecting the said Lot Nos. 3 and 2 of Block 13 of PCS-00-007463, FBDC delivered to BCDA physical possession of two (2) lots which were physically delineated from the ground of the Global City and which supposedly represented the lot Nos. 3 and 2 which are described in the said PCS-00-007463 and TCT Nos. 29185 and 29184; that pursuant to the Deed of Absolute Sale between FBDC and MPC respecting said Lot No. 1, Block No. 13 of PCS-00-007463, FBDC delivered to MPC physical possession of one lot which was physically delineated from the ground of the Global City and which supposedly represented Lot No. 1 which was described in said PCS-00-007463 and TCT No. 28990; that the parties paid the pertinent taxes due on the afore-described conveyances of the said three (3) Global City subdivision lots; that after the delivery of the physical possession of said three (3) lots to them, both BCDA and MPC started their respective development works (e.g., deep excavations) on the ground; that, FBDC however, recently discovered that there is a variance between the technical description of the boundaries of the aforestated three (3) subdivision lots as appearing in these lots' respective transfer certificates of title on the one hand, and the technical description of the boundaries of the three (3) lots as being actually occupied and developed by BCDA and MPC on the other, i.e., the technical description on the transfer certificates of title of the lots do not correspond with the physical boundaries of the three (3) subdivision lots in the Global City ; that in order to eliminate in a most expeditious way, the variance between the technical description as appearing on the respective transfer certificates of title and the physical boundaries of the lots and in order to avoid possible confusion and litigation respecting the boundaries of the lots later on, FBDC, BCDA and MPC entered into a Memorandum of Agreement to implement the aforedescribed adjustment in their respective transfer certificates of title whereby they agreed to exchange among themselves the specified sublots of the abovementioned Global City subdivision lots without monetary consideration and for which they will not get anything fundamentally different from what each of them already had prior to the exchange; that upon completion of the three-party exchange, FBDC, BCDA and MPC will have lots with equivalent areas, shape and relative location as their old lots; that the only change is the technical description of the lots as appearing in their respective transfer certificates of title which shall therefor correspond to the boundaries of the lots which were physically delineated from the ground of the Global City ; that in order to identify the portions of the lots which BCDA and MPC shall exchange among and between themselves and those which FBDC, BCDA and MPC shall exchange among and between themselves, FBDC, BCDA and MPC had their respective lots subdivided, with the affected portions being described as small sublots, viz.: cdta "1) BCDA's Lot No. 3, Block No. 13, PCS-00-007463, covered by TCT No. 29185, was subdivided, under PSD 00-046498 or (Survey Plan No. F of the attached Memorandum of Agreement) into Lot Nos. 3-A, 3-B and 3-C and 3D; "2) BCDA's Lot No. 2, Block No. 13, PCS-00-007463, covered by TCT No. 29184, was subdivided, under PSD 00-46500 (or Survey Plan No. G of the Memorandum of Agreement) into Lots 2-A 2-B and 2-C; "3) MPC's Lot No. 1, Block 13 of PCS-00-007463, covered by TCT No. 28990, was subdivided under PSD-00-046499 (or Survey Plan No. H of the attached Memorandum of Agreement) into Lot Nos. 1-A and 1-B. that these lots belonging to FBDC in the Global City which it undertakes to exchange with the sublots of BCDA and MPC in accordance with the Memorandum of Agreement are Lot Nos. 1, 2, 3 and 4 of Block No. 13 of PCS-00-007928; that this PCS-00-007928. superseded FBDC's earlier PCS-00-007-463; and that under the aforesaid Memorandum of Agreement , the parties shall make the following exchanges of sublots: "A. FBDC to BCDA . FBDC shall convey and transfer, by way of exchange of sublots, its ownership over the following sublots to BCDA : "Lot No. 4, Block No. 13 of PCS-00-007928 with an area of 3 sq.m., more less; "Lot No. 3, Block No. 13 of PCS-00-007928 with an area of 323 sq.m., more or less; and "Lot No. 2, Block No. 13 of PCS-00-007928 with an area of 190 sq.m., more or less; "B. FBDC to MPC . FBDC shall convey and transfer, by way of exchange of sublots, its ownership over the following sublot to MPC : "Lot No. 1, Block No. 13 of PCS-00-007928 with an area of 313 sq.m., more or less; "C. BCDA to MPC . FBDC shall convey and transfer, by way of exchange of sublots, its ownership over the following sublots to MPC : "Lot No. 2-B of PSD-00-046500 with an area of 179 sq.m., more or less; "D. MPC to FBDC . MPC shall convey and transfer, by way of exchange of sublots, its ownership over the following, sublot to FBDC: "Lot No. 1-B of PSD-00-046499 with an area of 492 sq.m., more or less "E. BCDA TO FBDC . FBDC shall convey and transfer, by way of exchange of sublots, its ownership over the following sublots to MPC : "Lot No. 3-B of PSD-00-046498 with an area of 111 sq.m., more or less; cdti "Lot No. 3-C of PSD-00-046498 with an area of 24 sq.m.; and "Lot No. 2-C of PSD-00-046500 with an area of 202 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 subdivision lots in Global City subdivision project by and among FBDC, BCDA and MPC , 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 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 and since the exchange was resorted merely to correct the errors in the technical description of the said subdivision lots as appearing in the said 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 by and among FBDC, BCDA and MPC 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 thus executed 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. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)