BIR Ruling [DA-323-97]

September 24, 1997 BIR RULING [DA-323-97] Bautista Picazo Buyco Tan & Fider 8th Floor, Singapore Airlines Building 138 H.V. dela Costa Street, Salcedo Village Makati City Attention: Attys. Antonio A. Picazo and Charlie C. Yalung Gentlemen : This refers to your letter dated August 15, 1997 stating that your client, Fort Bonifacio Development Corporation (FBDC), is the owner/developer of a specifically controlled and planned new city subdivision project known as the Global City which is located at Fort Bonifacio, Taguig, Metro Manila; that Global City consists of 214 hectares of parcels of land covered by Original Certificate of Title No. SP-001; that it is being developed pursuant to the government-approved Fort Bonifacio Global City Master Plan (Master Plan) in close coordination with the Bases Conversion and Development Authority which partly owns FBDC; that based on the Master Plan, FBDC started ground developments in the Global City ; that it contracted the service of geodetic engineers to prepare the Global City's subdivision plan ; that this subdivision plan, known as PCS-00-007463, was approved by the Land Management Services (LMS) of the Department of Environment and Natural Resources that based on this approved subdivision plan, the Registry of Deeds of Rizal issued transfer certificates of title corresponding to each lot delineated in the said Global City subdivision plan ; that FBDC sold to Meridien Development Group (Meridien) subdivision Lot Nos. 1 and 2, Block No. 1 of PCS-00-007463; that these lots are presently covered by TCT Nos. 27391 and 27392 of the Registry of Deeds of Rizal in the name of Meridien ; that pursuant to the Deed of Absolute Sale between them, respecting the said Lot Nos. 1 and 2, Block 1 of PCS-00-007463, FBDC delivered to Meridien physical possession of two (2) lots which were physically delineated on the ground of the Global City and which supposedly represented the lots described in the said PCS-00-007463 and TCT Nos. 27391 and 27392; that FBDC sold to East Forbes Properties Corporation (East Forbes) subdivision Lot No. 3, Block No. 1 of the same PCS-00-007463; that this lot is presently covered by TCT No. 27393 of the Registry of Deeds of Rizal in the name of East Forbes ; that pursuant to the Deed of Absolute Sale between them, respecting said Lot No. 3, Block No. 1 of PCS-00-007463, FBDC delivered to East Forbes physical possession of a lot which was physically delineated on the ground of the Global City and which supposedly represented the lot described in said PCS-00-007463 and TCT No. 27393; that the parties paid the pertinent taxes due on each of the afore-described conveyances of the said three (3) Global City subdivision lots; that after the delivery of the physical possession of the said three (3) lots of them, Meridien and East Forbes started their respective development works (e.g., deep excavations) on the ground; that however FBDC recently discovered that there is a variance between the technical description of the boundaries of the aforestated three (3) subdivision lots as appearing in these lots' respective transfer certificates of title on the one hand, and the technical description of the boundaries of the three (3) lots as being actually occupied and developed on the ground by Meridien and East Forbes on the other, i.e., the technical description on the transfer certificates of title of the lots do not correspond with the physical boundaries of the three (3) subdivision lots in the Global City ; that in order to eliminate this variance between the technical description as appearing on the respective transfer certificates of title of the lots and the physical boundaries of the lots in the most expeditious way, and in order to avoid possible confusion and litigation respecting the boundaries of the lots later on, FBDC , Meridien and East Forbes agreed to resort to a three-party exchange or swapping of equivalent small portions of their respective adjoining lots; that on June 11, 1997, a Memorandum of Agreement was entered into by and among FBDC , Meridien and East Forbes , in order to implement the aforedecscribed adjustment in the respective transfer certificates of title of the subdivision lots, whereby the parties thereto agreed to exchange among themselves the specified sublots of the abovementioned Global City subdivision lots ; that this three-party exchange or swapping of sublots under the Memorandum of Agreement will involve no monetary consideration and the parties will not get anything fundamentally different from what each already had prior to the exchange; that upon completion of the three-party exchange, FBDC , Meridien and Fast Forbes will have lots with equivalent areas, shape and relative location as their old lots; that the only change being in the technical description of the lots as appearing in their respective transfer certificates of title which shall now correspond to the boundaries of the lots as physically delineated on the ground of the Global City ; that in order to identify the portions of the lots which Meridien and East Forbes shall exchange between themselves and with FBDC , Meridien and East Forbes had their respective lots subdivided, with the affected portions being described as small sublots, viz.: 1) Meridien's Lot No. 1, Block No. 1, PCS-00-0077463, covered by TCT No. 27391, was subdivided, under PSD 00-045426 (or Survey Plan No. A of the Memorandum of Agreement) into Lot Nos. 1-A, 1-B and 1-C; 2) Meridien's Lot No. 2, Block No. 1, PCS-00-007463, covered by TCT No. 27392, was subdivided, under PSD 00-045427 (or Survey Plan No. B the Memorandum of Agreement) into Lots 2-A, 2-B and 2-C; 3) East Forbes' Lot No. 3, Block No. 1, PCS-00-007463 covered by TCT No. 27393, was subdivided, under PSD-00-045428 (or Survey Plan No. C of the Memorandum of Agreement) into Lot Nos. 3-A and 3-B. that these lots belonging to FBDC in the Global City which it undertakes to exchange with the sublots of Meridien and East Forbes in accordance with the Memorandum of Agreement are Lot Nos. 1, 2, and 3, Block No. of PCS-00-007928; that this PCS-00-007928 superseded FBDC's earlier PCS-00-007-493; and that the aforesaid Memorandum of Agreement , the parties shall make the following exchange of sublots: A. FBDC to Meridien. FBDC shall convey and transfer, by way of exchange of lots, its ownership over the following lots to Meridien : ICTHDE Lot No. 1, Block No. 1 of PCS-00-007928 with an area of 486 sq. m., more or less; and Lot No. 2, Block No. 1 of PCS-00-007928, with an area of 328 sq. m., more or less; B. FBDC to East Forbes . FBDC shall convey and transfer, by way of exchange of lots, its ownership over the following lot to East Forbes : Lot No. 3 of Block No. 1 of PCS-00-007928, with an area of 334 sq. m., more or less; C. Meridien to FBDC. Meridien shall convey and transfer, by way of exchange of lots, its ownership over the following sublots to FBDC : Lot No. 1-B of PSD 00-045426 with an area of 453 sq. m., more or less; and Lot No. 2-B of PSD 00-045427 with an area of 329 sq. m., more or less; D. East Forbes to FBDC. East Forbes shall convey and transfer, by way exchange of lots, its ownership over the following subplot to FBDC: Lot No. 3-B of PSD-00-045428 with an area of 366 sq. m., more or less; E. Meridien to East Forbes . Meridien shall convey and transfer, by way of exchange of lots, its ownership over the following sublot to East Forbes : Lot No. 2-C of PSD 00-0045427 with an area of 32 sq. m., more or less. Based on the foregoing representations, you now request for a ruling that the described exchanges of adjoining small portions of subdivision lots in Global City subdivision by and among FBDC, Meridien and East Forbes, are exempt from the payment of the corresponding taxes due on said exchange transaction, because while there was swapping or exchanges of real properties, no considerations was involved nor did the parties derive any gain resulting from the aforementioned exchanges. In reply, please be informed that since in the instant case, there is no actual sale, exchange or disposition of real properties, but just a mere exchange of adjoining small portions of subdivision lots in Global City subdivision project, coupled with the fact that there was no consideration involved and the parties will not get anything fundamentally different from what each already had prior to the exchange and the exchange was resorted to merely to correct the errors in the technical description of the said subdivision lots as appearing in the said lots respective transfer certificates of title or to eliminate the variance between the technical description of the said subdivision lots as appearing in these lots' respective transfer certificates of title versus what was delineated on the ground, this Office is of the opinion, as it hereby holds that the aforementioned exchanges of realties by and among FBDC , Meridien and East Forbes are not subject to the capital gains tax imposed under Section 21 (e) of the Tax Code, as amended. Furthermore, the said exchanges are not subject to the creditable withholding tax prescribed under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 implementing Section 50 (b) of the Tax Code, as amended. (BIR Ruling No. 355-92 dated December 16, 1992) Moreover, the said Memorandum of Agreement executed for the purpose is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the Tax Code, as amended by R.A. 7660. (BIR Ruling Nos. 355-92 dated December 16, 1992; 27-93 dated January 15, 1993) 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, (SGD.) SIXTO S. ESQUIVIAS IV OIC-Assistant Commissioner (Legal Service)