BIR Ruling [DA-457-06]

July 26, 2006 BIR RULING [DA-457-06] 24 (D) (5); 188; 091-2006 Teodoro Q. Pena Attorney at Law 23 Dragonfly, Valle Verde 6 Pasig City S i r : This refers to your letter dated June 01, 2006 requesting for exemption from capital gains tax and documentary stamp tax on the Waiver of Rights and Interest over a parcel of land. As represented, on June 09, 1998, Carlito Camposano executed a Deed of Waiver of Rights in relation to a parcel of land located in Barangay San Manuel/ San Jose, Puerto Princesa City, Palawan, in favor of Edelwina Pena, Agnes Pena-Perez, Ma. Jocelyn Pena-Schallenberg, and Edith Liane Pena (collectively, the "Pena Group"). This Deed categorically provides that Camposano was waiving, transferring and conveying all of his rights, claims and interest over the land, as occupant and claimant thereof. The land itself is public land that is still untitled to date. On June 09, 2001, the Pena Group executed a Second Deed of Waiver of Rights in relation to the same parcel of land, and for the same consideration as paid to Camposano, in favor of Erwin Alampay. As with the First Deed, the second Deed documents the Pena Group's transfer of rights and interest, as occupants and claimants of the land in favor of Alampay. After the execution of the second Deed, Alampay filed the first application for a homestead patent over the land. In reply, please be informed that under Section 27(D)(5) of the Tax Code of 1997, 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 Tax Code of 1997, whichever is higher, is 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 asset including pacto de retro sales and other forms of conditional sales by individuals, including estates and trust. In the instant case, however, the waiver of rights and interest by Mr. Carlito Camposano and the Pena Group was not a sale, exchange or disposition of real property classified as capital asset located in the Philippines, but rather an assignment of right pertaining to such property, hence, not included within the provision of Section 27(D)(5) of the Tax Code of 1997. It is, however, understood, that any gain realized by Mr. Carlito Camposano and the Pena Group as a consequence of such waiver of rights and interest, is subject to income tax. Accordingly, the waiver of rights and interest over a parcel of land is not subject to capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997, nor to the documentary stamp tax prescribed under Section 196 of the same Code. The notarial acknowledgment of the Deed however, is subject to P15.00 documentary stamp tax pursuant to Section 188 of the Tax Code of 1997. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service