BIR Ruling [DA-307-99]

May 18, 1999 BIR RULING [DA-307-99] Ms. Corazon A. Barreras Lot 12, Block 24, Bankers Village II 475 V.M. Garcia Street Quirino Highway Caloocan City M a d a m : This refers to your letter dated April 29, 1999 stating the following: 1. Mr. Apolinario P. Barreras, married to Onesima A. Barreras, is the registered owner of a parcel of land situated at the Bankers Village II, Caloocan City covered by TCT No. 37895 issued by the Registry of Deeds for Caloocan City and containing an area of 400 square meters; while Mr. Mario T. Victoria, married to Esperanza Q. Victoria is likewise the registered owner of a parcel of land in the same Bankers Village II, Caloocan City, immediately adjacent to the property of the former covered by TCT No. 41787 issued by the Registry of Deeds for Caloocan City and containing an area of 400 square meters; 2. Mr. Apolinario P. Barreras has constructed by honest mistake his residential house on the property of Mr. Mario T. Victoria, while the property covered by TCT No. 37895 remains vacant and unoccupied; and 3. In order to remedy the mistakes, and finding it impractical to physically transfer the house to the proper lot, the above parties executed on April 29, 1999 a Deed of Exchange without any consideration in order that the residential house of Mr. Apolinario P. Barreras may no longer be demolished or dismantled and transferred to his adjacent property; Based on the foregoing representations, you now request for a ruling that the Deed of Exchange executed by and between Mr. Apolinario P. Barreras and Mr. Mario T. Victoria for the purpose of correcting an error, as in this case, is not subject to capital gains tax and documentary stamp tax. In reply, please be informed that under Section 24(D)(1) 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 current fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher. However, since in the instant case there is no actual sale, exchange or disposition of real property for a valuable consideration, but a mere exchanging of the lots in question without consideration and only for purposes of rectifying a mistake, this Office is of the opinion as it hereby holds that the Deed of Exchange entered into by and between Mr. Apolinario P. Barreras and Mr. Mario T. Victoria is not subject to the capital gains tax imposed under the above-cited section of the Tax Code. SIcCTD Moreover, the said Deed of Exchange is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since the same was executed without my valuable consideration, which under Section 185 of 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)