Atty. Amelia L. Cube

September 10, 2009 BIR RULING [DA-(I-034) 532-09] Sec. 24 (D) (1); BIR Ruling [DA-(I-017) 199-08] Atty. Amelia L. Cube 4 Thailand St., Better Living Subd. Paraaque City Madam : This refers to your letter dated July 17, 2009 requesting on behalf of your clients, Romeo Conejos, Mercedes Conejos, Ester Conejos-Conese, Ruperto Conejos, (referred to as First Party) and Eligio Conejos, Laura Conejos-Esmenda, Sesenando Conejos and Lucia Conejos (referred to as Second Party) for exemption from the payment of capital gains tax relative to the swapping of real properties to rectify an error effected through a Deed of Exchange made without consideration. TcHCDE The facts of the case are as follows: 1. It appears from the Deed of Donation executed by Eufracio Conejos, father of the above-mentioned parties donated to the First Party his conjugal share over a parcel of land located at Tondo, Manila, identified as Lot No. 12, Block 11 covered by Transfer Certificate of Title (TCT) No. 162378 (formerly TCT No. 145028) together with the residential house situated thereon; 2. It also appears from the same Deed of Donation that said Eufracio Conejos donated to the Second Party his conjugal share over a parcel of land located at Tondo, Manila, identified at Lot No. 13, Block No. 11 covered by TCT No. 162379 (formerly TCT No. 133041) together with the residential apartment situated thereon; 3. Upon a scrutiny of their respective titles and documents, the parties discovered that a mistake was committed in the designation of Lot No. 12, Block No. 11 under TCT No. 162378 in favor of the First Party because the lot that should go to the First Party should be Lot No. 13, Block No. 11 (not Lot No. 12) since the residential house which was also donated to the First Party is actually standing in Lot No. 13 and covered by TCT No. 162379; 4. As a result of the foregoing, Lot No. 13, Block No. 11 under TCT No. 162379 was erroneously designated in favor of the Second Party instead of Lot No. 12, Block No. 11 covered by TCT No. 162378 because it is in Lot No. 12 (not Lot No. 13) that the residential apartments which were also donated to the said Second Party are actually standing; and 5. It is well emphasize that the First Party has been exercising full ownership and control of Lot No. 13, Block No. 11 under TCT No. 162379 including the residential house standing thereon ever since the same were donated to them. Likewise, The Second Party has been exercising full ownership and control of Lot No. 12, Block No. 11 under TCT No. 162378 including the residential apartments standing thereon ever since the same were also donated to them. 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 to correct a mistake, this Office is of the opinion as it hereby holds that the above-stated exchange of realties by and between the aforesaid parties is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, and to the documentary stamp tax under Section 196 of the same Tax Code. DCcHIS However, the fair market value pertaining to the 10 sq.m. which is the difference in the area received by the Second Party being transferred by the First Party is subject to the capital gains tax pursuant to Section 24 (D) (1) of the same Tax Code, which provides that 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 same Code, whichever is higher, is hereby imposed upon 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 trust. Moreover, pursuant to Section 196 likewise of the same Code, the aforestated value of 10 sq.m. is subject to the documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the same Code, whichever is higher. Moreover, the notarial acknowledgment to the aforesaid Deed of Exchange is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997, as amended. 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. AHaETS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service