BIR Ruling [DA-240-99]

April 15, 1999 BIR RULING [DA-240-99] D.A. Pilares Realty Development & Construction Co., Inc. Doa Sotera St., Pilarville, Subd. Tandang Sora, Quezon City Attention: Mr . Wilfredo Palacio Consultant Gentlemen : This refers to your letter dated March 8, 1999 requesting for a ruling to the effect that the Deed of Exchange executed by and between the Spouses Joel and Norma Ruta and D.A. Pilares Realty Development & Construction Co., Inc. on March 3, 1999 was merely to correct the error in the assignment of the lot numbers, hence, exempt from the payment of capital gains tax and/or creditable withholding tax. cdta It is represented that on March 3, 1999, a Deed of Exchange was made and executed by and between the Spouses Joel Ruta and Norma Ruta and DA Pilares Realty Development & Construction Co., Inc. (DAPRDCCI) wherein a parcel of land including improvement existing thereon identified as Lot 7-B situated in Camarin, Caloocan City containing an area of 96 square meters registered in the name of the Spouses Joel Ruta and Norma Ruta, covered by Transfer Certificate of Title No. 320771 issued by the Registry of Deeds of Caloocan City was exchanged with an adjoining parcel of land including improvements existing thereon identified as Lot 7-A likewise with an area of 96 square meters registered in the name of DAPRDCCI covered by Transfer Certificate of Title No. 262654 issued by the Registry of Deeds of Caloocan City; that the said Deed of Exchange was made in order to correct the error committed in the assignment of the lot number; and that this fact was confirmed by the Branch Manager of the Philippine National Bank, Commonwealth Branch, Ms. Esmeralda M. Abella. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, 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 Tax Code of 1997, whichever is higher, is 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 asset including pacto de retro sales and other forms of conditional sales, by individuals, including estate and trusts. Under the foregoing Provision of Section 24(D)(1) of the Tax Code of 1997, the exchange transaction entered into by and between the Spouses Joel Ruta and Norma Ruta and DAPRDCCI is not embraced within the context of the said provision considering that the parties executed the said Deed merely to correct the error committed in the assignment of the lot numbers which, if uncorrected, would result in the Spouses Joel and Norma Ruta's and DARDCCI taking possession of lots different from that indicated in their respective Certificate of Titles, hence, not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. UN-115-97 dated March 19, 1997) llcd For the same reason, the said exchange transaction is not likewise subject to the creditable withholding tax prescribed under Section 2.57.2(J) of Revenue Regulations No. 2-98 implementing Section 57(B) of the Tax Code of 1997. (BIR Ruling No. UN-115-97 dated March 19, 1997) Finally, the said Deed of Exchange is not also subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since the same was executed without any valuable consideration, which under Section 185 of Revenue Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations", conveyance without valuable consideration is not taxable. However, the acknowledgment on said Deed is subject to a documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. UN-115-97 dated March 19, 1997) 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. cdll Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)