BIR Ruling [DA-619-99]

November 3, 1999 BIR RULING [DA-619-99] Mamaril Area & Associates Law Firm Suite 512 Cityland 10 Tower 2 Condominium Dela Costa cor Valero Street Salcedo Village, Makati City Attention: Mr . Gelacio C . Mamaril Gentlemen : This refers to your letter dated October 28, 1998 requesting for a ruling in behalf of your client, Labrador Realty, Inc., as to whether or not the Deed of Exchange executed by Mr. and Mrs. Dionisio Tan and Olivia Emilie Tan is exempt from creditable withholding tax and documentary stamp taxes. It is represented that your client is engaged in the realty business; that on May 6, 1994, your client sold separately to Mr. and Mrs. Dionisio Tan and Olivia Emilie Tan two (2) separate residential lots of Vista Real Classica located in Quezon City for the total sum of P3,587,600.00; that unfortunately your client's developer, Sta. Lucia Development and Realty Corporation, has not yet been able to complete the development of the said two (2) residential lots; that for such reason, Mr. & Mrs. Dionisio Tan and Olivia Emilie Tan and your client have agreed to exchange said two (2) residential lots to another two (2) developed residential lots owned by your client at Neopolitan Subdivision, Quezon City, without any adjustment in price, additional costs, fees or charges on the said exchanges of real property; and that the above exchanges of real property do not involve any monetary consideration whatsoever and the parties thereto have realized no gain/no loss therefrom. llcd In reply, please be informed that pursuant to Section 24(D) of the Tax Code of 1997, 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 thrusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value prevailing at the time of the sale, whichever is higher. Such being the case, parties to the exchange (Deeds of Exchange between Labrador Realty, Inc. and Mr. Mrs. Dionisio Tan and Labrador Realty, Inc. and Olivia Emilie Tan) of real properties located in the Philippines classified as capital assets are each subject to 6% capital gains tax upon the capital gains presumed to have been realized from the exchange based on the fair market value or zonal value prevailing at the time of sale / exchange, whichever is higher. (BIR Ruling No. 505-98 dated November 18, 1998) Finally, both parties are each liable to their respective documentary stamp tax on the Deeds of Exchange based on the fair market value or zonal value of their respective properties, whichever is higher, pursuant to Section 196 of the same Tax Code. LibLex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group