BIR Ruling [DA-494-99]

September 2, 1999 BIR RULING [DA-494-99] Mr. Eduardo L. Martelino Pamapaan, Bacoor, Cavite S i r : This refers to your letter dated March 31, 1999 requesting for a ruling to the effect that the Deed of Exchange executed by and among Spouses Narciso Prado and Editha T. Prado, Spouses Benjamin R. Hilario and Josefina M. Hilario and Spouses Eduardo L. Martelino and Teresita T. Martelino was merely to correct the error committed by them when they inadvertently built their respective homes on the lots which actually adjoined each other, hence, exempt from the payment of capital gains tax and/or creditable withholding tax. It is represented that Spouses Narciso B. Prado an Editha T. Prado are the registered owners of a parcel of land more particularly described in Transfer Certificate of Title No. 324512, that Spouses Benjamin R. Hilario and Josefina M. Hilario are also the registered owners of a parcel of land, with all improvements thereon, more particularly described in Transfer Certificate of Title No. 225366; that Spouses Eduardo L. Martelino and Teresita T. Martelino are likewise the registered owners of a parcel of land, with all the improvements described thereon, in Transfer Certificate of Title No. 32168; that herein parties inadvertently built their respective homes on the lots which actually adjoined each other; that proper titling is being requested with the office of the Register of Deeds of Quezon City as regards Lots 2, 3 and 4, Block 10, Jordan Plains Subdivision, Novaliches, Quezon City; that the swapping of their lot titles was reached amicably at Barangay Sta. Monica, Novaliches, Quezon City by all the parties; and that a Deed of Exchange was executed on March 31, 1998 to effect the said swapping of lots. In reply, please be informed that under Section 24(D)(1) 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 assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estate and trusts. Under the foregoing provision of Section 24(D)(1) of the Tax Code of 1997, the exchange transaction entered into by and among Spouses Narciso Prado and Editha T. Prado, Spouses Benjamin R. Hilario and Josefina M. Hilario and Spouses Eduardo L. Martelino and Teresita T. Martelino is not embraced within the context of the said provision considering that the parties executed the said Deed merely to correct the error committed, which if uncorrected, would result in the Spouses Narciso Prado and Editha T. Prado, Spouses Benjamin R. Hilario and Josefina M. Hilario and Spouses Eduardo L. Martelino and Teresita T. Martelino taking possession of lots different from the ones described in their respective Certificate of Title, hence, not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, (BIR Ruling No. UN-115-97 dated March 19, 1997) For the same reason, the said exchange transaction is not likewise subject to the creditable withholding tax prescribed under Section 2.57.2 (J) of Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. (BIR Ruling No. 115-97 dated March 19, 1997) Finally, the Deed of Exchange is not also subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since the same was executed without any valuable consideration, which under Section 185 of Revenue Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations", conveyance without valuable consideration is not taxable. However, the acknowledgment on said Deed is subject to a documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. llcd 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group