BIR Ruling [DA-290-04]

May 26, 2004 BIR RULING [DA-290-04] Section 24 (D) (1); BIR Ruling No. DA-27-2003 & DA-39-2003 Multi-Realty Development Corp. Makati Stock Exchange Building Ayala Avenue, Makati City Attention: Ms. Cecille R. Patricio Vice President Gentlemen : This refers to your letter dated March 16, 2004 requesting for a confirmation of your opinion that the swapping of real properties between Rosario Gabaldon and Henry C. Ibasco is exempt from capital gains and documentary stamp taxes. It is represented that Multi-Realty Development Corporation (MRDC) is a domestic corporation duly organized and existing under and by virtue of the Philippine laws with office address at Room 326, Makati Stock Exchange Building, Ayala Avenue, Makati City, Metro Manila; that on May 23, 1996, MRDC and Rosario Gabaldon executed a Deed of Absolute Sale (TCT No. T-163314) covering one (1) townhouse unit at SM Homes identified as Lot 23 Block I; that title over the said property was transferred and registered in the name of Rosario Gabaldon; that on the same date, MRDC and Henry C. Ibasco executed a Deed of Absolute Sale (TCT No. T-163312) covering one (1) townhouse unit at SM Homes identified as Lot 21 Block I; that title over the said property was also transferred and registered in the name of Henry C. Ibasco; that while both townhouse units sit on a 60-square meter lot, Rosario Gabaldon's unit was purchased at P1.50 Million while the selling price of Henry C. Ibasco's unit was P1.65 Million; that in November 1999, Rosario Gabaldon learned that her unit was being unlawfully occupied by Henry C. Ibasco; that when MRDC confronted Henry C. Ibasco about his unlawful occupation of Rosario Gabaldon's unit, he claimed that it was MRDC which led him to his present unit; and that after negotiation, Rosario Gabaldon is willing to swap her unit with that of Henry C. Ibasco so that the latter's stay in the property will be legalized. 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 correct a mistake, this Office is of the opinion as it hereby holds that the aforementioned exchange of realties between Rosario Gabaldon and Henry C. Ibasco is not subject to the capital gains tax, imposed under Section 24 (D) (1) of the Tax Code of 1997, and the documentary stamp tax prescribed under Section 196 of the same Code. ECAaTS However, the acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 on certification pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling No. DA-39-03 dated February 11, 2003 and DA-27-03 dated January 1, 2003). Nonetheless, the excess of the selling price over the acquisition cost of the property ( i.e. PhP1.65 Million less PhP1.5 Million) as a result of the exchange of the properties shall be subject to income tax/capital gains tax. (BIR Ruling No. 121-91 dated June 25, 1991) 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service