Mr. Eduardo C. Luzon

December 23, 2008 BIR RULING [DA-(I-047) 571-08] DA 198-04 Mr. Eduardo C. Luzon B7 L34 Summerwind 3 Salitran 3, Dasmarias Cavite Sir : This refers to your letter dated May 5, 2008 stating that your principal Ms. Teresita Buenaventura Cruz is the absolute and registered owner of a parcel of land covered by TCT No. T-306610 consisting of 2,939 square meters located in Dasmarias, Cavite; that said property was expropriated by the government for the realignment of the Salitran Road in Barangay Salitran, Dasmarias, Cavite; that in exchange for the said property, the government upon recommendation of then Secretary Gregorio Vigilar of the Department of Public Works and Highways (DPWH), offered an untitled abandoned lot with an area of 2,931 square meters to Ms. Teresita Buenaventura Cruz; that on July 22, 1998, a Deed of Exchange of Real Property was executed by and between Ms. Teresita Buenaventura Cruz and the Republic of the Philippines represented by then Executive Secretary Ronaldo Zamora; that when Ms. Teresita Buenaventura Cruz moved for the registration of the said property in her favor, the Registry of Deeds for Trece Martirez endorsed the matter to the Land Registration Authority (LRA); and that on April 22, 2008, the Office of the President through Mr. Manuel B. Gaite, Deputy Executive Secretary for Legal Affairs, opined that it becomes ministerial on the part of the Registry of Deeds for Trece Martirez and/or the LRA to honor the same and effect the registration of the said property exchanged in favor of Ms. Cruz considering that the government has already taken and used the property for its road re-aligning. IDAEHT Based on the foregoing circumstances, you now request for an opinion on whether or not the transfer of the above-mentioned property by the government, through the DPWH, in favor of Ms. Teresita Buenaventura Cruz, by virtue of a Deed of Exchange, is subject to capital gains tax and the corresponding documentary stamp tax. In reply thereto, please be informed that it has been the consistent stance of this Office that an exchange of properties between two (2) parties is subject to capital gains tax and the corresponding documentary stamp tax based on the fair market value of their respective properties. (BIR Ruling No. 201-87 dated July 13, 1987) Inasmuch as the exchange of properties between Ms. Teresita Buenaventura Cruz and the government of the Republic of the Philippines was part of the compensation package for the expropriation of the former's property, which was traversed by the alignment of road in Salitran, Dasmarias, Cavite, the said transfer partakes the nature of voluntary exchange. Hence, it is subject to the aforesaid taxes. Accordingly, both Ms. Teresita Buenaventura Cruz and the government of the Republic of the Philippines are subject to the capital gains tax imposed under Sections 24 (D) (1) and 27 (D) (1) of the Tax Code of 1997 and the corresponding documentary stamp tax prescribed in Section 196, supra , based on the fair market value of their respective properties. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service