BIR Ruling [DA-305-99]

May 18, 1999 BIR RULING [DA-305-99] Mr. Raul A. Guevara 56 Old Dr. J. P. Rizal St., Kalumpang, Marikina City S i r : This refers to your letter dated January 27, 1999 requesting for exemption from the payment of capital gains tax and documentary stamp tax relative to the swapping of a parcel of land belonging to you with that of your sister, Gloria A. Guevara, in order to rectify the mistake committed by you in erecting an improvement in the latter's property. Documents submitted to this Office disclosed that you are the absolute and registered owner of a parcel of land situated in Kalumpang, Marikina City with an area of Two Hundred Nine Square Meters and Sixty Square Decimeters (209.60) more or less, and covered by Transfer Certificate of Title No. 317155 of the Registry of Deeds for Marikina; that Gloria Guevara is the absolute and registered owner of a certain parcel of land situated in Kalumpang, Marikina City with an area of Two Hundred Nine Square Meters and Sixty Decimeters (209.60) more or less, and covered by Transfer Certificate of Title No. N-72692 of the Registry of Deeds for Marikina City; that you and Gloria Guevara are the natural children of Antonia Aquino-Guevara and deceased Amado Guevara; that the aforesaid property with TCT No. N-72692 adjoins your property covered by TCT No. 317155; that you erroneously erected an improvement in Gloria Guevara's parcel of land covered by TCT No. N-72692 believing that it is the property you acquired from your parents; that under said prevailing situation and acting in good faith, you have been paying the real estate taxes for said parcel of land covered by TCT No. N-72692; that when Gloria Guevara had intended to erect a residential house in her property, the error, upon verification with Assessor's Office of Marikina City, was discovered; and that in order to rectify the error committed, the parties had thereafter executed a Deed of Exchange on the subject property. In reply, please be informed that pursuant to Section 24(D) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange, or other disposition of real property, located in the Philippines classified as capital assets including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of the sale, whichever is higher. SEIDAC Such being the case, parties to the exchange of real properties located in the Philippines classified as capital assets are subject to the 6% capital gains tax based on the gross selling price or the fair market value/zonal value prevailing at the time of sale/exchange, whichever is higher (BIR Ruling No. 201-87). Considering, however, that the reason for the execution of the Deed of Exchange covering the aforesaid real properties (with TCT Nos. 317155 and N-72692), was merely to correct the error committed by you in erecting an improvement on the lot which you thought was the very lot belonging to you, this Office is of the opinion that you and Gloria Guevara are not liable to pay the capital gains tax imposed under then Section 24(D) of the Tax Code of 1997 and the documentary stamp tax prescribed under Section 196 of the same Code, on the exchange executed by you and Gloria A. Guevara. (BIR Ruling No. 008-95 dated January 16, 1995) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)