BIR Ruling [DA-340-04]

June 23, 2004 BIR RULING [DA-340-04] 24 (D) (1), 196; DA-145-2000 Mesdames Tarcela Simbul, Ophelia Simbul and Aloha Jean Padernal 38 Aduana St., New Intramuros Village Diliman, Quezon City Gentlemen : This refers to your letter dated January 8, 2004 requesting for exemption from the payment of capital gains and documentary stamp taxes relative to the swapping of real properties to rectify an error effected through a Deed of Exchange made without monetary consideration. The facts, as you represented are as follows: 1. The aforesaid, properties are adjoining lots located at the New Intramuros Village, Diliman, Quezon City and were previously owned by Lobella A. Gonzales; 2. The first parcel identified as Lot 14-A was sold to Tarcela Simbul and Ophelia Simbul, and is now covered by TCT No. 122147 issued by the Registry of Deeds for Quezon City; 3. The other parcel identified as Lot 14-B was sold to Alona Jean Padernal and is now covered by TCT No. 122602 also issued by the Registry of Deeds for Quezon City; 4. When Mrs. Simbul applied for a bank loan and offered her property as a collateral, the bank noticed that there was an error in the technical description of the land. Consequently, the loan application was disapproved; 5. Further verifications showed that the actual location of the land bought by Tarcela Simbul and Ophelia Simbul is Lot 14-B, while the actual location of the land bought by Alona Jean Padernal is Lot 14-A; 6. In order to correct the error, a Deed of Exchange was executed by the said parties; and 7. It is agreed by the parties in the exchange that there was no monetary or valuable consideration for the conveyance and such transaction was effected for the purpose of rectifying and correcting the error committed by the previous owner of these properties. 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 was merely for the purpose of correcting the mistake above-mentioned, the exchange of realties by and between the afore-stated parties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. Furthermore, the swapping of real properties are not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of said Deed Exchange is subject to the documentary stamp tax of P15.00, pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-145-2000 dated March 10, 2000) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. DIECTc Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service