BIR Ruling [DA-230-06]

April 11, 2006 BIR RULING [DA-230-06] 24 (D) (1); 196; 188; DA-194-2000 Mr. Pablo Coronel Sta. Lucia Grand Mall Building, Marcos Hi-way Cainta, Rizal S i r : This refers to your letter dated February 4, 2006, requesting in behalf of your clients, Spouses Ezar F. De Guia and Nancy L. De Guia for exemption from capital gains tax and documentary stamp tax on the Deed of Exchange executed in order to replace the real property purchased. It is represented that the Spouses Ezar F. de Guia and Nancy L. De Guia (FIRST PARTY) are residents of No. 432 Aragona Street, Citadella Executive Village, Las Pias City; that they are the registered owners of a parcel of land described as Lot 25, Block 7 covered by Transfer Certificate of Title No. T-39011 issued by the Registered of Deeds of Las Pias City which they purchased from the developer, Sta. Lucia Realty and Development, Inc. (Developer); that sometime in 1996, after complying with the requirements for construction as prescribed by the Developer and upon actual survey and laying of the landmarks, they started to build their house on the lot identified for them by the Developer; that in 2002, the De Guia spouses were informed that the land on which their house was constructed was owned by another, namely William C. Yu and Nedia Sagun (SECOND PARTY) and that the adjacent lot which the Saguns thought was theirs, was owned by the De Guias; that after a series of conferences and negotiations, and upon informing the Developer of the problem, the Developer acknowledged its mistake, prepared and processed the documents necessary to expedite the exchange or swapping of the properties between the parties without monetary consideration and further undertook to bear all related expenses for the re-survey, documentation, taxes, and transfer of the properties involved; that a Deed of Exchange was executed by the parties and the agreement is as follows: 1. The FIRST PARTY, who is the registered owner of the lot described as Lot 25 Block 7 and covered by TCT No. T-39011 but is the actual occupant of, and whose house is built on, Lot 26 Block 7, whose title belongs to the SECOND PARTY, shall remain in possession of the latter lot, and upon implementation of the swapping agreement, would be the legitimate owner of the said Lot 26 Block 7 upon issuance in his favor of a new title thereto; 2. The SECOND PARTY, who is the registered owner of the lot described as Lot 26 Block 7, which the FIRST PARTY is occupying, shall, after the implementation of this swapping agreement, be the legitimate owner of Lot 25, Block 7, which is presently titled under the FIRST PARTY's name; 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 formalize the agreement between the parties that Lot 25, Block 7, which is presently titled under the name of the De Guias, be now under the name of William C. Yu and Nedia Sagun, and that Lot 26, Block 7, which is presently occupied by the De Guias, whose title belongs to William C. Yu and Nedia Sagun, shall be titled under the name of the De Guias, the same is not subject to the capital gains tax, imposed under Section 2(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98. SECATH Furthermore, the said exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said deed is subject to documentary stamp tax P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA 068-98 dated March 2, 1998) This ruling is issued on the basis of the foregoing representations. However, if upon investigation, it will be disclosed that the facts are different, the this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service