BIR Ruling [DA-335-98]

July 21, 1998 BIR RULING [DA-335-98] Florentino & Esmaquel Law Office Suite 502, Fifth Floor, CLMC Building EDSA, Greenhills Mandaluyong City Attention: Atty . Paterno L . Esmaquel Gentlemen : This refers to your letter dated June 2, 1998 stating that sometime in August 1997, the Spouses Juan M. Ilustre III and Marissa M. Ilustre met with a broker of Jater Development Corporation (Jater) which is the owner/developer of a condominium Project known as Emerald Mansion located at Emerald Avenue, Pasig City, which Project was still in finishing stage, for the purpose of purchasing a unit in the Project; that the spouses advised the broker that they need at least 150 square meters to be used by their family as their residence; that after several days, the broker called the spouses to inform them that there was a unit available with a purchase price of P4,394,692.00; that the Spouses Juan M. Ilustre III and Marissa M. Ilustre then agreed to purchase the said unit and asked the broker to have the Deed of Sale for the said unit prepared and that they will pay in cash to take advantage of cash purchased discount; that upon payment thereof to Jater, a Deed of Sale over the said unit was then executed; that after payment of the corresponding withholding tax and documentary stamp taxes due with the Bureau of Internal Revenue, Condominium Certificate of Title No. PT-17466 of the Register of Deeds of Pasig was issued in the name of the spouses; that the said title was then delivered to the spouses, but to their dismay upon their review of the said title, the unit transferred to them contains only 115.70 square meters; that the said unit is more particularly described as follows: cdtech Condominium Unit No. 1702 Floor Level 17th Floor Area One Hundred Fifteen and 70 (115.70) square meters with Parking Space No. 29 at Floor Level Base 2 that upon inquiry from Jater why the unit contains only 115.70, Jater explained that a miscommunication along the line took place because what was relayed to them by the broker was that the spouses needed at least 115 square meters, instead of 150 square meters; that it is evident that the broker misunderstood 150 square meters for 115 square meters; that after several negotiations between Jater and the spouses, and in order to correct the mistake and give effect to the true intention of the spouses, the latter agreed to reconvey in favor of Jater, Condominium Unit No. 1702 at Floor level 17th with an area of 115.70 square meters with Parking Space No. 29 at Floor Level Base 2, covered by CCT No. PT-17466 of the Register of Deeds of Pasig, and in exchange thereof, Jater agreed to convey in favor of Ilustre Condominium Unit No. 1801 at Floor Level 18th with an area of 156.11 square meters with Parking Space No. 13 at Floor Level 4th Floor, situated in the same Project, covered by CCT No. PT-17473 of the Register of Deeds of Pasig; that the spouses further agreed to pay Jater the amount of P1,069,158.00 which is the difference between the amount of P4,394,692.00 already paid by the spouses to Jater and the value of Condominium Unit No. PT-17473 which is P5,463,850.00; and that a Deed of Reconveyance and Conveyance was then executed to effect the said agreement. Based on the foregoing representation and documents submitted, you now request for a ruling that only the difference of P1,069,158.00 is subject to the capital gains tax and documentary stamp tax. In reply, please be informed that since the exchange transaction in question is without any monetary consideration, and considering further that the execution of the Deed of Reconveyance and Conveyance is merely to correct a mistake, this Office is of the opinion as it hereby holds that the aforementioned exchange of realties between the Spouses Juan M. Ilustre III and Marissa M. Ilustre and Jater Development Corporation is not subject to the capital gains tax, imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax imposed under Revenue Regulations No. 1-90. However, the difference of P1,069,158.00 is subject to the capital gains tax pursuant to Section 24(D)(1) of the Tax Code of 1997 which provides that a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the same Code, whichever is higher, is hereby imposed upon 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 trust. Moreover, pursuant to Section 196 of the Tax Code of 1997, the difference of P1,069,158.00 is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher. Likewise, the notarial acknowledgment to the said Deed of Reconveyance and Conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-93 dated January 15, 1993) casia 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 Deputy Commissioner (Legal and Enforcement Group)