Mr. Pio Valerio

May 2, 2008 BIR RULING [DA-282-08] R.A. 6657; Sec. 196; DA-164-07 Mr. Pio Valerio Talampas, Bustos, Bulacan S i r : This refers to your letter dated December 12, 2007 which was received by this Office by way of 1st Indorsement dated January 8, 2008 from Revenue Region No. 5, Valenzuela City, requesting for capital gains tax exemption on the transfer of real property by way of disturbance compensation. It appears that Mr. Pedro Reyes, et al. are the registered owners of a parcel of land located in Talampas, Bustos, Bulacan covered by Transfer Certificate of Title No. T-185603, with an area of 4,683 square meters; that Mr. Pio Valerio is the tenant of said land; that on August 10, 2004 an agreement "Kasulatan sa Pagsasalin ng Pagmamay-ari Kapalit ng Pagsasaka (Disturbance Compensation)" was executed whereby the owners agreed to partition the said land with the consent of Valerio and half of the property tenanted with an area of 4,683 square meters shall be awarded to Valerio as his disturbance compensation; and that PARO II, Engr. Ramon V. Estanislao, III, issued a certification dated December 7, 2007 certifying therein that The Department of Agrarian Reform has no objection to the Registration of the above mentioned agreement. In reply thereto, please be informed that Section 66 of R.A. No. 6657 provides that "SEC. 66. Exemption from Taxes and Fees of Land Transfers . Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof: Provided, That all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled." In stressing the rationale of the above-mentioned provisions, this Office elucidated the matter in BIR Ruling No. DA058-06 dated February 23, 2006 as follows: "Since the conveyance of the 26 parcels of land by MRI in favor of the farmer beneficiaries is in the form of disturbance compensation to the farmer beneficiaries who were displaced from their respective areas of tillage, no capital gains tax/creditable withholding tax is due on the transaction in accordance with the afore-quoted provisions of R.A. No. 6657." Furthermore, since the transaction is without any monetary consideration and not in connection with a sale, no creditable withholding tax and documentary stamp tax imposed under Sections 27 and 196, respectively, of the Tax Code, as amended, are due on the transaction. However, the notarial acknowledgment on the Deed of Conveyance of Land and Voluntary Surrender of Leaseholding and Tenancy Rights is subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997, as amended. HCTDIS Accordingly, this Office hereby confirms your opinion that the conveyance of the parcel of land covered by Transfer Certificate of Title No. T-185603 through a Kasulatan sa Pagsasalin ng Pagmamay-ari Kapalit ng Pagsasaka (Disturbance Compensation) in favor of Pio Valerio is not subject to capital gains/creditable withholding and documentary stamp taxes. 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. DCSETa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service