BIR Ruling [DA-640-04]

December 17, 2004 BIR RULING [DA-640-04] 24 (D); 196; 105 DA-127-2002 Quiason Makalintal Barot Torres & Ibarra 21st Floor Robinsons-Equitable Tower 4 ADB Ave. cor. Pedro Poveda Street Ortigas Center, Pasig City Attention: Attys. Wilfrido E. Sanchez, Ruelito Q. Soriano and Benedict R. Tugonon Gentlemen : This refers to your letter dated October 16, 2004 requesting on behalf of your client, Eduardo T. Caniza for a ruling confirming your opinion that the termination of co-ownership/partition of properties is exempt from capital gains tax, documentary stamp tax and value-added tax. It appears that Eduardo T. Caniza (Eduardo for brevity) together with his brother Ernesto T. Caniza (hereinafter referred to as Ernesto) are the absolute and registered co-owners of the following real properties jointly titled in their names: TCT/CCT No. Location TCT No. T-98706 Cavinti, Laguna CCT No. 23284 Unit 101, One Corporate Plaza, Pasay City TCT No. 215810 T. Alonzo, Sta. Cruz, Manila TCT No. T-1 5579 Sungay East, Tagaytay City TCT No. 215811/215812 Platerias, Sta. Cruz, Manila TCT No. 164922 Masangkay, Tondo, Manila on October 17, 2002, Eduardo and Ernesto executed a Memorandum of Agreement whereby the brothers agreed to partition the above-stated properties as follows: To: Eduardo T. Caniza TCT No. T-98706 Cavinti, Laguna CCT No. 23284 Unit 101, One Corporate Plaza, Pasay City TCT No. 215810 T. Alonzo, Sta. Cruz, Manila To: Ernesto T. Caniza TCT No. T-15579 Sungay East, Tagaytay City TCT No. 215811/215812 Platerias, Sta. Cruz, Manila TCT No. 164922 Masangkay, Tondo, Manila 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, including pacto de retro sales and other forms of conditional sales, by individual, including estates and trust. Considering that there is no sale, exchange or disposition of property in the above-mentioned transaction but merely a partition of the properties among the co-owners which properties rightfully belong to them and without any consideration, the same is not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. TCaEIc Moreover, the partition of the said properties among the co-owners is not subject to documentary stamp tax under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 prescribed under Section 188 of the same Tax Code. (BIR Ruling No. DA-127-2002 dated July 25, 2002) The transaction is likewise not subject to value-added tax, since the dissolution of co-ownership and eventually the partition of properties is not a sale of goods and services pursuant to Section 105 of the Tax Code of 1997. 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 are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group