BIR Ruling No. 031-15

February 5, 2015 BIR RULING NO. 031-15 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 460-11 Corazon C. Gonzales 147 Kalandang St. San Jose, Caloocan City Madam : This refers to your letter dated February 7, 2013, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. Documents submitted disclosed that Corazon C. Gonzales is the registered owner of a parcel of land, identified as Lot 18, Blk. 2 of the subd. Plan Psd-03-136076 being a portion of lot 20-H-2-E-3-B-1-A-2 Psd-03-135170 LRC Rec. No. 3878 covered by Transfer Certificate of Title (TCT) No. 435791 (M). On the other hand, Edgardo Bonilla is the registered owner of a parcel of land, identified as Lot 19, Blk. 2 of the subd. Plan Psd-03-136076 being a portion of lot 20-H-2-E-3-B-1-A-2 Psd-03-135170 LRC Rec. No. 3878 covered by TCT No. 040-2012004305. 1 However, it was found out later that there was a typographical error in the Deed of Absolute Sale executed by Corazon C. Gonzales and Edgardo Bonilla, such that, the lot given to Edgardo Bonilla pertained to Lot 19 when in fact, it is Lot 18. In order to correct the foregoing mistake, Corazon C. Gonzales and Edgardo Bonilla executed a Deed of Exchange dated January 26, 2012 wherein the parties agreed to exchange their respective properties with that of the other without any monetary consideration. In reply, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides that 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 6% based on the gross selling price or the fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher. (BIR Ruling No. 460-11 dated November 24, 2011) As represented, the error was inadvertently committed in typing the designated lot in the Deed of Absolute Sale by the former owner (Corazon C. Gonzales), such that the property given to Victoria A. Velasquez should be Lot 18, instead of Lot 19. However, upon perusal of the Deed of Absolute Sale executed by Corazon C. Gonzales and Edgardo Bonilla, the same appears to be in order because there are no typographical errors which are manifest. In addition, the presence of the signatures of all the parties to the transaction just shows that said executed document was checked for errors. There being no apparent mistake nor trace of falsity or error that necessitates the exchange of the properties between the parties, the requested tax exemption have no legal basis to be granted. Such being the case, both exchanging parties i.e. , Corazon C. Gonzales and Edgardo Bonilla are subject, separately and distinctly, to the 6% capital gains tax based on the fair market value or zonal value of the properties, whichever is higher, as imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. Moreover, pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value or zonal value whichever is higher. (BIR Ruling No. 460-11 dated November 24, 2011) Regrettably, your request for exemption from the payment of capital gains tax and documentary stamp tax is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Formerly: TCT No. T-435792 (M).