BIR Ruling [DA-343-06]

May 31, 2006 BIR RULING [DA-343-06] DA 526-05 Valerio Ong Saavedra Vicerra & Protasio 10F, iBank Exchange Building 142 Amorsolo Street Legaspi Village Makati City Attention: Atty. Aileen Paulette Saavedra-De Jesus and Atty. Benedicto M. Valerio, Jr . Gentlemen : This refers to your letter dated May 18, 2006 stating that your client, RAMSY CORPORATION (RAMSY) is a domestic corporation registered with the Securities and Exchange Commission (SEC); that on the other hand, RAMSY AND HORIZONS REALTY, INC. (HRI) is a corporation duly registered under the laws of the Philippines; that HRI is engaged in the real estate business and the developer of a subdivision project known as Balai Taal Subdivision in the City of Tagaytay, Province of Cavite; that the transaction between RAMSY and HRI can be summarized as follows: 1. In 2005, RAMSY entered into an agreement for the purchase of Lot No. 03, Block No. 7 which was later identified as Lot No. 03, Block 6 after adjustments on the "block numbering" (Lot 1) has been made on the Balai Taal subdivision project. The documents for the sale and transfer in favor of RAMSY have been executed. 2. Shortly after the execution of the Deed of Absolute Sale, however, representatives of RAMSY conducted a final inspection of the subdivision premises and a decision was made to purchase Lot 03, Block 8 (Lot 2), a property that is also within the same subdivision, instead of Lot 1. 3. An agreement has been with HRI to substitute Lot 1 with Lot 2 and to reform, amend and/or correct the relevant sales documents. 4. The sales documents corresponding to Lot 1 were not cancelled and returned to HRI for amendment, correction and/or reformation due to error, miscommunication, lack of coordination and/or inadvertence committed by personnel of RAMSY who erroneously caused the transfer of title over Lot 1 in favor of RAMSY based on the sales documents. The error was discovered when the corresponding title over Lot 1 has already been issued in favor of RAMSY. 5. To reflect the true intention of the parties, RAMSY and HRI mutually and voluntarily agreed to exchange the subject properties without any monetary consideration involved but solely to correct the mistake earlier committed by the personnel of RAMSY. In connection therewith, you now request confirmation of your opinion that the swap/exchange of real properties between RAMSY and HRI is exempt from the payment of capital gains tax/creditable withholding tax and the corresponding documentary stamp tax. In reply thereto, please be informed that this Office had already occasion to rule on the matter, when it said in BIR Ruling No. DA526-05 dated December 29, 2005 that ". . . that considering that the swapping of the above-mentioned properties is without any monetary consideration, and considering further that the purpose of executing a Deed of Exchange is merely to correct a mistake inadvertently committed in the construction of the Spouses Belerma's residential house on Federico Belerma's lot, this Office is of the opinion that the said swap transaction 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 Section 57 thereof, as implemented by Revenue Regulations No. 2-98. "Furthermore, the above Deed of Exchange is not subject to the documentary stamp tax imposed under Section 196 of the tax Code of 1997 but only to the P15.00 documentary stamp tax imposed under Section 188 of the same Tax Code. . . ." TDCaSE In the instant case, since the exchange of the above-mentioned properties between RAMSY and HRI is merely to reflect the true intention of the parties, i.e., the sale of Lot 2 by RAMSY instead of Lot 1 as described in the sales documents, and the exchange is without monetary consideration but solely to correct the mistake committed by the personnel of RAMSY, which is in all fours similar to the above-cited case, the exchange of the aforesaid properties between RAMSY and HRI is not subject to capital gains tax/creditable withholding tax and the corresponding documentary stamp tax. IN VIEW OF THE FOREGOING, this Office holds that the Memorandum of Agreement executed by HRI and RAMSY involving the exchange of the above-mentioned properties to reflect the true intention of the parties and to correct the mistake committed is not subject to capital gains tax/creditable withholding tax and the corresponding documentary stamp tax respectively imposed under Section 27(D)(5) of the Tax Code of 1997, Revenue Regulations No. 2-98 and Section 196 of the said Code. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service