Tax Liability for Capital Gains Tax Relative to the Deed of Exchange

March 30, 1989 BIR RULING NO. 053-89 21 (e) 000-00 053-89 Gentlemen : This refers to your letters dated August 26 and October 24, 1988 requesting in behalf of your client, Ms. Victoria Gesalan, a ruling on her liability for capital gains tax relative to the Deed of Exchange she and Phil-Dumez Construction Corporation executed upon the advise of the Register of Deeds of Marikina. It is represented that sometime in March 1988, your abovenamed client bought a parcel of land from Mr. Eliseo Batanes which he in turn acquired from Phil-Dumez Construction Corporation; that the property subject of the said sale was lot 5, blk 2 of Marville Park Subdivision in Antipolo, Rizal; that immediately thereafter, your client caused the transfer and registration of the property under her name; that she paid the respective amounts of P7,500.00, P1,500.00 and P3.00 as capital gains tax, documentary stamp tax and certification fee; that in due time, the Register of Deeds of Rizal issued TCT No. 147628 in her favor; that in July 1988, your client discovered that Phil-Dumez Construction Corporation issued the wrong title to Mr. Eliseo Batanes; that verification by Phil-Dumez Construction Corporation confirmed that Mr. Batanes was indeed issued the title to the adjacent property (lot 7) which contains the same land area; that as a consequence, the parties executed an amended agreement but was advised by the Register of Deeds to execute instead a deed of exchange, which the parties did; and that when the parties requested for an exemption certificate from this Office (Marikina Office), your client was again assessed for capital gains tax. 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. Accordingly, 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 client, has already paid the 5% capital gains tax and the corresponding documentary stamp tax when she caused the transfer and registration of the aforementioned property (lot 7, Blk. 2) she bought from Mr. Eliseo Batanes in her name coupled with the fact that the said property was previously sold to Mr. Reynaldo T. Balabala on July 21, 1986 by Phil-Dumez Construction Corporation which through inadvertence was again awarded to Mr. Eliseo Batanes on December 29, 1986, although the true intent of Phil-Dumez Construction Corporation was to award the adjacent lot (lot 5, Blk 2) to Mr. Eliseo Batanes, this Office is, therefore, of the opinion that your client, Ms. Victoria Gesalan is no longer liable for capital gains tax on the Deed of Exchange she and Phil-Dumez Construction Corporation executed on August 17, 1988. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner