Mr. Eddie C. Nepomuceno

December 18, 2008 BIR RULING [DA-(I-046) 550-08] BIR RULING NO. 067-97; 21 Mr. Eddie C. Nepomuceno # 19, 5th Street, Goodrich Village Concepcion, Marikina City Sir : This refers to your letter dated September 17, 2008 requesting, on behalf of your nephew, exemption from the payment of capital gains tax considering that the subject property has been used ever since as "right of way"; and that the capital gains tax of your adjoining property has been paid. SEcAIC In reply, please be informed that pursuant to Section 21 (e) of the Tax Code, as amended, 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 shall be taxed at the rate of 5% of the gross selling price or fair market value prevailing at the time of sale, whichever is higher. An easement of right of way is not a sale or transfer of real property because the owner of the servient estate retains ownership of the portion on which the easement is established and may use the same in such a manner as not to effect the exercise of the easement. (Article 630, New Civil Code) Such being the case, the owners who granted easement of right of way, are not subject to the capital gains tax imposed by Section 21 (e) of the Tax Code, as amended, and to the documentary stamp tax prescribed under Section 96 of the same Code. (BIR RULING No. 067-97 dated June 5, 1997) It is however understood that the income derived by the owners of the servient estate from and as a consequence of the Grant of Right of Way is subject to income tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service