BIR Ruling [DA-385-03]

October 27, 2003 BIR RULING [DA-385-03] 24 (D) (1); 196; DA-146-2002 Armed Forces and Police Mutual Benefit Association, Inc. Col. Bonny Serrano cor. E. delos Santos Avenue Quezon City Attention: Mr. Alfonso R. Suemith President Gentlemen : This refers to your letter dated August 21, 2003 requesting for an 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. It appears that Armed Forces and Police Mutual Benefit Association, Inc. (AFPMBAI) is a non-stock, non-profit corporation which provide low-cost housing units to its members composed of the AFP, PNP, BJMP, PCG and BFP personnel; that your members, Charles Mariano and Lt. Ernesto Solano were awarded housing loans for a duplex type housing in your subdivision project at Mutual Homes, Putatan, Muntinlupa City, particularly Block 9 Lot 73 and Block 9 Lot 74, respectively; that the loan of Lt. Ernesto Solano was intended for take-out to PAG-IBIG; that you caused the registration of title of the property on his name under TCT No. 126077; that the title to the property of Mr. Mariano remains on AFPMBAI's name under TCT No. 116779; that it was later on discovered that Mr. Mariano occupied by mistake the unit awarded to Lt. Solano, while the latter occupied the unit awarded to Mr. Mariano; and that in order to rectify the said error, the parties deemed it proper to fully settle possession over the properties by executing a Deed of Exchange, but you were then assessed capital gains and documentary stamp taxes by the BIR for the aforestated exchange transaction. 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 is merely to correct a mistake, this Office is of the opinion as it hereby holds that the above-stated exchange of realties by and between the aforesaid parties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 and to the documentary stamp tax under Section 196 of the same Tax Code. However, the fair market value of 21 sq.m. which is the difference in the area received by Mr. Mariano/AFPMBAI being transferred by Lt. Solano is subject to the capital gains tax pursuant to Section 24(D)(1) of the same Tax Code, 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. cSIACD Moreover, pursuant to Section 196 likewise of the same Code, the above-mentioned value of 21 sq.m. is likewise subject to the 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. Similarly, the notarial acknowledgment to the said Deed of Exchange is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-146-2002 dated September 3, 2002) 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 at different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service