Reyes-Fajardo & Associates

June 21, 2010 BIR RULING [DA-(I-010) 103-10] 24 (D) (1); BIR Ruling [DA-(I-002) 011-08]; BIR Ruling No. 027-93 Reyes-Fajardo & Associates Unit 1004-B Summit Tower One 530 Shaw Boulevard Mandaluyong City Attention: Attys. Marian Ivy F. Reyes-Fajardo and Maria Cecilia V. Soria Gentlemen : This refers to your letter dated June 04, 2009 requesting on behalf of your clients Spouses Danny and Florentina Siongco ("Spouses Siongco") and Ralph Lim Joseph ("Mr. Joseph"), successor-in-interest of Nacor Trading Incorporated ("NACOR") for exemption from the payment of capital gains tax and documentary stamp tax on the swapping of real properties to correct a mistake and without consideration. CETDHA Background Facts: Spouses Siongco are part owners with Jennifer Pua Dee-Chang of a parcel of land located in Tagaytay City (hereinafter "Lot A"). Lot A, which measures a total area of One Thousand square meters (1,000 sq.m.), and is covered by Transfer Certificate of Title (TCT) No. T-22091 issued in the name of Florentina Siongco and Jennifer Pua Dee. Mr. Joseph is the successor-in-interest of a parcel of land adjacent to Lot A. This parcel of land also has a total area of One Thousand square meters (1,000 sq.m.) and is covered by Transfer Certificate of Title No. T-15622 issued in the name of NACOR. Sometime in October 1990, the spouses Siongco began constructing a house in Lot B under a mistaken belief that the same is Lot A. During that time, said spouses also introduced other improvements such as installation of electrical connections, paving of the road, and construction of fence around the property. The house being constructed by the spouses soon became habitable and, notwithstanding its partial completion, the spouses and their children moved in. The construction of the house thereafter proceeded on a piece-meal basis. In 2005, Mr. Joseph called the attention of the spouses pointing out that the parcel of land upon which they built their house was owned by him. As proof, Mr. Joseph showed the spouses the tax mapping conducted by the City of Tagaytay, which clearly showed that the spouses constructed their house on Lot B. Further verification with the concerned government agencies in Tagaytay City yielded the same conclusion: That spouses Siongco erected their house on Lot B instead of Lot A. Since the spouses were able to show that the mistake was done in good faith and, further, considering that Lots A and B are adjacent to each other and similar in size and shape, both parties agreed to exchange or swap their respective properties without any monetary consideration. Moreover, NACOR/Mr. Joseph agreed to the swap for humanitarian reasons since the spouses had already established their family home on Lot B. Thus, with the consent of their co-owner Jennifer Pua Dee-Chang, the spouses Siongco executed with NACOR a Deed of Exchange over the properties. HCDaAS 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 is merely for the purpose of correcting the mistake above-described, the exchange of realties by and among Spouses Siongco and Mr. Joseph 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. (BIR Ruling No. 027-93 dated January 15, 1993) Furthermore, the said swapping of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgment of 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-(I-002) 011-08 dated July 08, 2008] 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.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service