BIR Ruling [DA-526-05]

December 29, 2005 BIR RULING [DA-526-05] DA-035-2004; Sec. 24 (D) (1) Mercedita M. Belerma Falcon Street Metrogreen Village, Pasig City M a d a m : This refers to your letter dated November 3, 2005, 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 and made without monetary consideration. It is represented that the Spouses Reynaldo and Mercedita Belerma (Spouses Belerma, for brevity) are the absolute and registered owners of a parcel of land located in the Barrio of Rosario, Pasig City covered by TCT No. PT-91339 issued by the Registry of Deeds, Pasig City and containing an area of one hundred twenty (120) square meters; that on the other hand, Federico Belerma is the absolute and registered owner of a parcel of land, also located at the Barrio of Rosario, Pasig City, containing an area of one hundred twenty (120) square meters; and that the two properties are adjoining each other. It is further represented that the Spouses Belerma erroneously constructed their residential house on the adjacent lot owned by Federico Belerma; that to remedy said inadvertence, both parties are willing to swap their above-mentioned lots; and that this swapping shall be effected without any monetary consideration. ISAaTH In reply, please. be informed 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. (BIR Ruling No. DA-225-2002 dated November 27, 2002 citing DA-194-2000 dated March 30, 2000). 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service