Lauigan Catabay-Lauigan Law Offices

May 28, 2010 BIR RULING [DA-(I-007) 082-10] 24 (D) (1); 196; 188; [DA-(I-033)371-08]; [DA-(I-032)363-08]; [DA-(I-022)011-08]; DA-237-03; DA-068-98 Lauigan Catabay-Lauigan Law Offices Unit 426 St. John Condo, Scout Rallos St., Diliman, Quezon City Gentlemen : This refers to your letter dated January 8, 2009, requesting in behalf of your client, Atty. Geronimo S. Reyes, Jr. for exemption from capital gains tax and documentary stamp tax on the rectification and correction of entries in their respective titles to real properties. It is represented that during the lifetime of your client's parents, they acquired a real property in Centro 2 Tuguegarao which they proceeded to improve, possess and occupy; that they had the property registered under TCT No. T-27235 in the name of Filomena S. Reyes; that on the adjacent lot to the east of the property of Filomena S. Reyes is parcel of land covered by TCT No. T-77697 registered in the name of Felisa B. Navarro, who also in turn introduced improvements and occupied the same; that as it turned out later, the registered owners and their heirs realized that while they were occupying their respective properties, the technical description of the properties appearing in their respective titles do not match the actual description of their properties, in other words, TCT No. T-27235 issued in the name of Filomena S. Reyes bears the technical description of the property owned by Felisa B. Navarro and the title TCT No. T-77697 in the name of Felisa B. Navarro describes the property owned and occupied by the heirs of Filomena S. Reyes; that obviously there was a mistake in the technical description embodied in each other's titles; that both registered owners executed a document before Notary Public Isidro S. Reyes expressing their intention to correct the mistake; and that while the document executed was a Deed of Exchange, in truth and in fact, there is no exchange of property but rather a mere rectification and correction of entries in their respective titles to truly reflect the technical description of the properties they own and possess. cHDEaC In reply, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange by Felisa B. Navarro and Filomena S. Reyes is merely to correct and rectify the entries made on their respective titles, the same is not subject to the capital gains tax, imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, nor to the withholding tax imposed under Revenue Regulations No. 2-98, as amended. Furthermore, the said exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA 068-98 dated March 2, 1998) However, since the subject parcels of land are not of the same size, namely, Transfer Certificates of Title Nos. T-27235 and T-77697 containing an area of 654 square meters and 643 square meters respectively, the difference in the size shall be subject to the capital gains tax at the rate of 6% based on the gross selling price or the fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher and to the documentary stamp tax pursuant to Section 196 of the Tax Code of 1997, where a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value or zonal value whichever is higher. (BIR Ruling No. 029-96 dated February 27, 1996, as reiterated in BIR Ruling No. DA-282-97 dated August 20, 1997) This ruling is issued on the basis of the foregoing representations. 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.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group