BIR Ruling [DA-198-04]

April 6, 2004 BIR RULING [DA-198-04] DA 443-00 National Housing Authority Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Mr. Edgardo D. Pamintuan General Manager Gentlemen : This refers to your letter dated September 4, 2003 requesting for reconsideration of BIR Ruling No. DA443-00 dated December 29, 2000, which is a reiteration of BIR Ruling No. 201-87 dated July 13, 1987, where this Office ruled that "xxx xxx xxx "SUCH BEING THE CASE, this Office is of the opinion as it hereby holds that the exchange of properties by Spouses Palma and the NHA shall be subject to the capital gains tax under Section 24(D)(1) of the Tax Code of 1997 and the documentary stamp tax under Section 196 of the same Code based on the fair market value or zonal value of their respective properties, whichever is higher, or under Section 24(A) of the same Code, at the option of the taxpayer." In the aforesaid letter, it is your contention that Peafrancia ZIP Project is a socialized housing project, owned and managed by the National Housing Authority (NHA); that the beneficiaries of the said project belong to the lowest thirty (30%) percent of the social strata; that since the Peafrancia ZIP Project is isolated from Zamora Street, the NHA negotiated with Spouses Palma for the acquisition of a portion of Lot 19, Block 926 to serve as the access right of way for your project beneficiaries; that in so doing, NHA opted to exchange two (2) economic lots with a portion of Lot 19, Block 926 with a lesser value; that since this lot becomes a portion of the project, it is included in the term "sites and services" covered by R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and therefore exempt from the payment of capital gains tax and the corresponding documentary stamp tax. EACIaT In reply thereto, please be informed that your request for reconsideration is hereby denied for lack of legal basis. It has been the consistent stance of this Office that an exchange of properties between two (2) parties is subject to capital gains tax and the corresponding documentary stamp tax based on the fair market value of their respective properties. Inasmuch as the exchange of properties between Spouses Palma and the NHA involving the former's 73.30 square meter lot and the latter's two economic lots, to serve as access road right of way for the latter's project beneficiaries, partakes of the nature of voluntary exchange, it is subject to the aforesaid taxes. Thus, NHA cannot under the guise of its tax incentives provided under Section 19 of R.A. No. 7279, exempt itself from the payment of the capital gains tax and the documentary stamp tax as the acquisition of the 73.30 square meter lot of Spouses Palma is no longer within the province of R.A. No. 7279. Accordingly, the contemplated transfer or exchange of properties by Spouses Palma and the NHA is subject to capital gains tax and the corresponding documentary stamp tax based on the fair market value of their respective properties. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group