BIR Ruling [DA-708-99]

December 28, 1999 BIR RULING [DA-708-99] Ms . Paz M . Garcia Poblacion, Plaridel Bulacan M a d a m : This refers to your letter dated November 10, 1999 stating that you are the absolute and registered owner of two (2) adjoining parcels of land located at Poblacion, Plaridel, Bulacan covered by TCT Nos. T-17689 and T-17691 issued by the Registry of Deeds for the Province of Bulacan respectively containing an area of 223 square meters and 32 square meters; that on the other hand, Ms. Lourdes S. Mariano is the absolute and registered co-owner of two (2) adjoining parcels of land located at Poblacion, Plaridel, Bulacan covered by TCT No. 185543 issued by the Registry of Deeds for the Province of Bulacan and respectively containing an area of 204 square meters and 23 square meters; that upon survey of the said parcels of land it was discovered that there has been a mistake in the location of their respective residential houses i.e., your house is located on the lots of Ms. Lourdes S. Mariano while the residential house of the latter is erected on your lots which were erected prior to the issuance of their respective titles; that in order to remedy the mistakes, and finding it impractical to physically transfer the houses to the proper lot, the above parties executed on October 14, 1999 a Deed of Exchange without any consideration i order that their respective residential houses may no longer be demolished or dismantled and transferred to their respective properties. In connection therewith, you now request for a ruling as to whether or not the Deed of Exchange executed by you and Ms. Lourdes S. Mariano for purposes of correcting an error, as in this case, is subject to capital gains tax and documentary stamp tax. In reply thereto, please be informed that under Section 24(D)(1) 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 trusts, shall be taxed at the rate of 6% based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher. However, since in the instant case there is no actual sale, exchange or disposition of real property for a valuable consideration, but a mere exchanging of the lots in question without consideration and only for purposes of rectifying a mistake, this Office is of the opinion as it hereby holds that the Deed of Exchange entered into by and between you and Ms. Lourdes S. Mariano is not subject to the capital gains tax imposed under the above-cited section of the Tax Code. Moreover, the said Deed of Exchange is not 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 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. (BIR Ruling No. UN115-97 dated March 19, 1997) LibLex 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 without force and effect. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)