BIR Ruling No. 042-12

February 9, 2012 BIR RULING NO. 042-12 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 154-10; BIR Ruling No. 181-11; BIR Ruling No. 095-11 Sps. Bonifacio C. Sevilla and Therese K. Sevilla 45 JP Rizal Sta. Lucia Novaliches, Quezon City Sps. Ricky V. Valerio and Ma. Theresa M. Valerio 43-E 21st West Rembo Makati City Gentlemen : This refers to your undated letter, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. ACHEaI It is represented that on March 1, 2011 and March 20, 2010, Deeds of Absolute Sale were executed by Country Bankers Life Insurance Corp. whereby it transferred its ownership over parcels of land, designated as Lot 8 B 20 of the consolidated subdivision plan (LRC) Pcs-11864 containing an area of four hundred forty four (444) sq.m. covered by Transfer Certificate of Title (TCT) No. 004-2011003583 (formerly TCT No. 366414) (T-342622) to Sps. Ricky V. Valerio with Tax Identification No. 140-947-716-000 and Ma. Theresa M. Valerio with Tax Identification No. 278-971-973-000 at a price of P1,998,000.00 or P4,500.00 per square meter and Lot 7 B 20 of the consolidated subdivision plan (LRC) Pcs-11864 containing an area of four hundred thirty nine (439) sq.m. covered by Transfer Certificate of Title (TCT) No. 004-2010001985 (formerly TCT No. 366413) (T-158537) to Sps. Bonifacio C. Sevilla with Tax Identification No. 120-673-411-000 and Therese K. Sevilla with Tax Identification No. 117-992-906-000 at a price of P1,975,500.00 or P4,500.00 per square meter, respectively; that however, it was found out that mistake was committed by licensed Geodetic Engr. Patricio C. Cabalo in relocating the respective lots, when he conducted a relocation survey on Lot 7, Block 20; that he inadvertently relocated Lot 8, Block 20 on the adjacent lot which should have been Lot 7, Block 20; that because of said inadvertence committed by the geodetic engineer which was relied upon by the Spouses Sevilla, the latter constructed a house on Lot 8; and that in order to correct the said error, Sps. Bonifacio C. Sevilla and Therese K. Sevilla and Sps. Ricky V. Valerio and Ma. Theresa M. Valerio executed a Deed of Exchange of Real Property dated April 26, 2011 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. 181-11 dated June 7, 2011 and BIR Ruling No. 095-11 dated April 5, 2011) Furthermore, since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange by Sps. Bonifacio C. Sevilla and Therese K. Sevilla and Sps. Ricky V. Valerio and Ma. Theresa M. Valerio is merely to correct the mistake resulting from the designation of the lot, the same is not subject to the capital gains tax, imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, nor to the withholding tax imposed under Revenue Regulations No. 2-98, as amended. Moreover, the said exchange of real properties is likewise not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgment of the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 154-10 dated December 22, 2010) HAECID However, since the subject parcels of land are not of the same size, namely, Transfer Certificates of Title No. 004-2010001985 and 004-2011003583 containing an area of 439 square meters and 444 square meters respectively, the difference in the size shall be subject to the capital gains tax 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 and to the documentary stamp tax pursuant to Section 196 of the Tax Code of 1997, where 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. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue