Mr. Julio S. Bautista

August 10, 2009 BIR RULING [DA-(I-027) 450-09] Sections 24 (D) (1) & 196; BIR Ruling Nos. DA-486-05 Mr. Julio S. Bautista c/o No. 15 Himlayan Road Pasong Tamo, Quezon City Sir : This refers to your letter dated June 26, 2009 requesting on behalf of Irene Sarmiento-Sonza, Herminigildo Sarmiento, Leonida Sarmiento and Maxima Sarmiento-Doroteo (the "Sarmientos") for a ruling exempting from the payment of capital gains and documentary stamp taxes the Deed of Exchange executed between the Sarmientos (First Party) and Firmo T. Cirilo, Gloria C. Abriam, Eduardo F. Cirilo, Wilfredo F. Cirilo, Firmo F. Cirilo, Jr., Editha C. Reyes, Teresita C. Extra and Rogelio F. Cirilo (Second Party) in order to correct an error. TcEDHa As represented, the First Party are the owners in fee simple of a certain parcel of land (Lot 7, situated in Bo. Banlat, Quezon City) with improvements covered by Transfer Certificate of Title No. N-328992 of the Registry of Deeds of Quezon City containing an area of 332 square meters, more or less. Second Party are the owners in fee simple of the adjacent parcel of land (Lot 8, situated in Bo. Banlat, Quezon City) with improvements covered by Transfer Certificate of Title No. N-260844 of the Registry of Deeds of Quezon City containing an area of 332 square meters, more or less. It is further represented, that both parties had been occupying the respective parcels of land belonging to the other since birth. In the process of settling the estate of their parents, the First Party filed the Extra-Judicial Settlement of the Estate of the Late Jacinto Sarmiento and Catalina Samonte before the Register of Deeds of Quezon City and after evaluation of the same by said Office, the First Party was required to secure a typewritten technical descriptions of the TCT No. 61621 (now TCT No. N-328992), from the Land Registration Authority. On April 24, 2009, the Microfilm Division of the Land Registration Authority, after verification of the technical descriptions of the aforesaid TCT, came out with the following results: CDaTAI "Lot 8, covered by Transfer Certificate of Title No. N-260844 of which the First party is now occupying is not their property. The First Party, actually owned Lot 7 covered by Transfer Certificate of Title No. N-328992, consisting of Three Hundred Thirty Two (332) square meters, which is adjacent to Lot 8 of said Transfer Certificate of Title No. N-260844; Lot 7, covered by the Transfer Certificate of Title No. N-328992, of which the Second Party is now occupying is not their property. The Second Party, actually owned Lot 8, covered by said Transfer Certificate of Title No. N-260844 consisting also of Three Hundred Thirty Two (332) square meters, and as above-stated, the same is adjacent to Lot 7, covered by Transfer Certificate of Title No. N-328992" In order to correct the above error, the parties executed a "Deed of Exchange of Parcels of Land" to avoid complications and matters that might prejudice the improvements existing on the subject parcels of land and further expenses. In reply, please be informed that considering that the exchange transaction in question is without any monetary consideration, and considering further that the execution of the "Deed of Exchange of Parcels of Land" is merely to correct the above mistake committed by the parties, this Office is of the opinion as it hereby holds that the aforementioned Deed of Exchange is not subject to the capital gains tax imposed under Section 24 (D) (1) of the 1997 Tax Code, as amended. Moreover, the "Deed of Exchange of Parcels of Land" is likewise not subject to the documentary stamp tax imposed under Section 196 of the Tax Code. However, the Acknowledgment on the said Deed is subject to the documentary stamp tax imposed under Section 188 of the same Code. 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 as null and void. TaCIDS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service