Kalaw Sy Selva & Campos

November 4, 2008 BIR RULING [DA-(I-035) 388-08] 24 (D) (1), 188 Kalaw Sy Selva & Campos West Tower 2106A Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Attys. Shennan A. Sy and Kristian Ren B. Manzano Gentlemen : This refers to your letter dated September 24, 2008 requesting for a confirmation that an exchange of real property between two (2) brothers without monetary consideration and only for the purpose of correcting the mistake on their respective titles is exempt from the payment of capital gains tax and documentary stamp tax. CEcaTH The facts as you represented are as follows: In 1999, your client, Jose Mario M. Oledan bought from his parents a parcel of land, together with the improvements thereon, corresponding to Lot 14 of Merville Park in Paraaque City. In 2002, his elder brother, Jose Antonio Vicente M. Oledan likewise bought from his parents a parcel of land, together with the improvements thereon, corresponding to Lot 16 of the same subdivision in Paraaque City. Upon the respective payment of the purchase price, the properties were transferred and registered in the names of the 2 brothers. For reasons known only to the lawyer who facilitated the transfer, Lot 16 covered by Transfer Certificate of Title (TCT) No. 142227 of the Registry of Deeds for Paraaque City, was erroneously registered in the name of Jose Mario M. Oledan and Lot 14 covered by TCT No. 153956 of the Registry of Deeds for Paraaque City was registered in his brother's name. Unaware that their respective titles indicated the wrong lot number, both brothers began to occupy the properties as sold to them by their parents, and have continuously paid the real estate taxes of the properties registered in their names. In 2008, Jose Antonio Vicente M. Oledan expressed interest to sell his property to another person. Hence, he started to secure the necessary documents for the sale of his property. When he tried to obtain a certification from the treasurer's office of the payment of realty taxes, he was assessed deficiency realty taxes. Apparently, he has been paying for the property occupied by Jose Mario M. Oledan, while the latter was paying for the realty taxes of the property occupied by his brother, pursuant to the lot indicated in their respective titles. Considering the improvements made by the brothers on their respective properties both refused to vacate the lots possessed by them. However, to rectify the mistake committed by the former lawyer in their respective titles, both brothers agreed to enter into a deed of exchange without any monetary consideration. This was agreed upon only for the purpose of correcting the lot number, as indicated in their respective titles, to correspond to the property actually occupied by them. In reply, please be informed that since there is no actual sale, exchange or voluntary disposition of real properties, but just a mere exchange without valuable consideration and considering that the conveyances were made merely for the purpose of correcting a mistake, the herein exchange of properties is therefore, not subject to capital gains tax under Section 24 (D) (1) of the Tax Code of 1997. Moreover, conveyances of realty to trustees or other persons without consideration is not taxable under Revenue Regulations No. 26 otherwise known as the Revised Documentary Stamp Tax Regulations. Thus, the Deed of Exchange executed by the parties which was made without monetary consideration is not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code, as amended. However, the notarial acknowledgment to said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. ACIDTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service