Request for Exemption from Capital Gains Tax and Documentary Stamp Tax of Certain Exchange of Realties

January 16, 1995 BIR RULING NO. 008-95 21 (e) 053-89 008-95 Fojas Ulep Listana & Associates Room 303 A & T Building 244 Escolta Street, Manila Attention: Atty . Rodolfo P . Orticio Gentlemen : This refers to your letter dated August 16, 1993 stating that Tsang King King of Mabini Street, San Pedro, Laguna is the registered owner of a parcel of land (Lot E) situated at (Landayan) Poblacion, San Pedro, Laguna, with an area of 858 square meters covered by TCT No. 158515 of the Registry of Deeds for Calamba, Laguna; that Tsang Shan Shan, Tsang King King's sister, is, on the other hand, the registered owner of the adjacent lot, (Lot D) with an area of 877 square meters, covered by TCT No. 159514; that the Tsang sisters bought the said adjacent lots at the same time from their father, Chan Choan Juan; that through confusion, errors were inadvertently committed in the preparation of the corresponding deeds of sale, such that the property sold to Tsang King King, which would be Lot D, with an area of 877 square meters, then covered by TCT No. T-78830 was stated in the Deed of Sale executed in her favor as Lot E with an area of 858 square meters then covered by TCT No. T-78331, while the Deed of Sale executed in favor of Tsang Shan Shan, which would be Lot E, was inadvertently stated as Lot D, that the Tsang sisters have pain the corresponding capital gains tax and documentary stamp tax as follows : prcd Name Kind of CR No. Date Amount Paid Tax Tsang King King capital gains tax 13374526 11/13/87 P2,574.00 doc. stamp tax 13531837 11/12/87 520.00 Tsang Shan Shan capital gains tax 13374524 11/13/87 P3,750.00 doc. stamp tax 1352838 11/12/87 750.00 that Tsang sisters have taken possession of the lots actually pertaining to each of them, Lot D for Tsang King and Lot E for Tsang Shan Shan; that to correct the error, Tsang King King and Tsang Shan Shan have voluntarily agreed by and between themselves, without any monetary consideration to exchange the subject parcels of land inadvertently interchanged as to its registration, by virtue of the error committed in the preparation of the corresponding Deeds of Sale, in and to each of their respective names; and that to support the foregoing representation you submitted a Certification dated September 11, 1993 issued by the Barangay Chairman of Barangay Landayan, San Pedro, Laguna, certifying to the effect that Tsang King King is a bonafide resident of the said Barangay had been occupying Lot D, described in TCT No. 78830 since November 1987, while Tsang Shan Shan is likewise a bonafide resident of the said Barangay had been occupying Lot E, described in TCT No. T-78830, since November 1987. Based on the foregoing representations, you now request exemption from the payment of capital gains tax and documentary stamp tax the said exchange of realties of your clients, Tsang King King and Tsang Shan Shan. In reply, please be informed that under 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 trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, parties to an exchange of real properties located in the Philippines classified as capital assets are subject to the 5% capital gains tax based on the fair market value (zonal value) of the properties exchanged (BIR Ruling No. 201-87). Considering , however, that, in the instant case, your clients, had already paid the 5% capital gains tax and the corresponding documentary stamp tax when they (Tsang sisters) caused the transfer and registration of the aforementioned properties (Lots D and E) they bought from their father, Chan Choan Juan, in their respective name coupled with the fact that through inadvertence the said properties were interchanged in the preparation of the sale documents conveying the said adjacent properties in their favor, such that Lot D then covered by TCT No. T-78830 which was sold in favor of Tsang King King was stated in the Deed of Sale executed in her favor as Lot E then covered by TCT No. T-78331 while Lot E which was sold in favor of Tsang Shan Shan was stated in the Deed of Sale executed in her favor as Lot D, this Office is, therefore, of the opinion that your clients Tsang King King and Tsang Shan Shan are no longer liable to pay the capital gains tax imposed under Section 21 (e) of the Tax Code, as amended and documentary stamp tax prescribed under Section 196 of the same Code on the exchange executed by your said clients of the aforesaid realties to rectify the errors committed in the preparation of the sale documents conveying the same in their favor. cdpr Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue