BIR Ruling No. 039-12

February 1, 2012 BIR RULING NO. 039-12 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. DA-(I-014) 202-09; BIR Ruling No. DA-(I-013) 199-09; BIR Ruling No. DA-159-2002; BIR Ruling No. DA-155-2002 Mr. Bienvenido Caraan Mr. Teofilo Caraan Ms. Francisca Ramos 420 Primero de Marzo St., Pasay City Sir/Madam : This refers to your undated letter, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. Documents submitted disclose that SIXTO CARAAN, JR., PERSEVERANTE CARAAN, ERNESTO CARAAN, BIENVENIDO CARAAN, TEOFILO CARAAN, ROSALINDA CARAAN, REMEDIOS CARAAN and FRANCISCA RAMOS (married to Francisco Sundiam) are co-owners of a parcel of land situated at Brgy. San Roque, Pasay City and covered by Transfer Certificate of Title (TCT) No. 148687 of the Registry of Deeds of Pasay City with an area of Two Hundred Sixty Nine and 25/100 square meters (269.25 sq.m.); that on 09 July 2009, a Partition Agreement was executed by the aforementioned co-owners whereby the subject parcel of land is subdivided into two (2) lots identified and designated as Lot 2427-B-2-A with an area of 134.62 sq.m. and Lot 2427-B-2-B with an area of 134.63 sq.m.; that the Partition Agreement provided that: Lot 2427-B-2-A was for SIXTO CARAAN, JR., PERSEVERANTE CARAAN, ERNESTO CARAAN, BIENVENIDO CARAAN, TEOFILO CARAAN, ROSALINDA CARAAN, and REMEDIOS CARAAN ( hereinafter referred to the FIRST PARTY) and DTEIaC Lot 2427-B-2-B to FRANCISCA RAMOS (hereinafter referred to the SECOND PARTY). that as a result of the partition, TCT No. 148687 was cancelled and the following TCTs were issued to the name of the following people: 1) TCT No. 150758 (Lot 2427-B-2-A), with an area of 134.62 sq.m., was issued in the name of the FIRST PARTY; 2) TCT No. 150759 (Lot 2427-B-2-B), with an area of 134.63 sq.m., was issued in the name of the SECOND PARTY. It is represented that when the new titles were issued for the two lots, you found out that a mistake was committed in the subdivision agreement wherein your assigned lots should be exchanged; that to correct the mistake committed in order that the true owners of the lot be named in the title, the parties agreed to execute a Deed of Exchange without any monetary consideration; and that you now request for exemption from the imposition of capital gains and documentary stamp tax on the exchange of properties between the said parties effected through a Deed of Exchange and made without 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 the Tax Code of 1997, whichever is higher. (BIR Ruling No. DA-(I-014) 202-09 dated April 21, 2009) Notwithstanding that in the present circumstances exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange between the FIRST and SECOND PARTIES was to correct the supposed mistake resulting from the designation of the lots to the supposed true owners, this Office is of the opinion that the exchange transaction is subject to the 6% capital gains tax based on the gross selling price or the fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher. The transaction is likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. cCTESa A perusal of the submitted documents shows that the TCTs were registered and issued pursuant to the provisions of the Partition Agreement. Although it is contended that a mistake was committed at the time of the assignment of the sub-divided lots, it does not appear to be so considering that the Partition Agreement was clear in the distribution of Lot Nos. 2427-B-2-A and 2427-B-2-B to the FIRST PARTY and the SECOND PARTY, respectively. There is neither an apparent nor inadvertent error committed in the titling or subdivision to justify the exchange of properties considering that the subdivided lots were aptly distributed to both parties according to their Agreement. Thus, the request for exemption from imposition of capital and documentary stamp taxes is being denied for lack of legal basis. 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 null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue