BIR Ruling No. 095-11

April 5, 2011 BIR RULING NO. 095-11 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 027-93; BIR Ruling No. 008-95; BIR Ruling No. DA-(I-014) 202-09; BIR Ruling No. DA-159-2002; BIR Ruling No. DA-155-2002 Office of the Legal Counsel Development Bank of the Philippines Tacurong City, Sultan Kudarat Gentlemen : This refers to your letter dated February 15, 2010, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. HCEcAa It is represented that Development Bank of the Philippines (DBP) is the lawful owner of a parcel of land, acquired thru Extra Judicial Foreclosure designated as Lot No. 74-E-5 containing an area of three hundred (300) sq.m. located in the Municipality of Isulan, Sultan Kudarat; that the said lot had been offered to Mrs. Fe Laguda who had fully paid the same; that it was found during the processing of the Deed of Sale that the aforesaid Lot No. 74-E-5 should properly pertain to and owned by Sps. Rolando Felipe and Divina Kimhoko-Felipe pursuant to a deed of sale of a portion of land sold by Rodolfo Padua, Sr. and Elsie Millan Padua executed on September 8, 1989, however, as the lot sold in their favor was only a portion of the entire area of six hundred (600) sq.m., during the segregation survey, the area allotted to the spouses Rolando Felipe and Divina Kimhoko-Felipe was erroneously designated as Lot No. 74-E-4; that in order to rectify the errors in the issuance of titles, DBP, represented by Fernando G. Lagahit and Mr. Rolando Felipe married to Divina I. Kimhoko voluntarily agreed to exchange their respective properties by virtue of Deed of Exchange in order to correct the mistake committed by sheer oversight and inadvertence in the preparation of title and mal-identification of respective properties by simply swapping their respective titles to the properties without any monetary consideration. In reply, please be informed that Section 24 (D) of the Tax Code of 1997, as amended, provides that a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the same Code, whichever is higher, is imposed upon the 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. Such being the case, parties to an exchange of real properties located in the Philippines classified as capital assets are subject to the 6% capital gains tax based on the fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, of the properties exchanged. Considering, however, that since the exchange transaction between DBP, represented by Fernando G. Lagahit and Mr. Rolando Felipe married to Divina I. Kimhoko with respect to the three hundred (300) sq.m. of their respective properties, is without any monetary consideration, and that the execution of the Deed of Exchange is order to correct the mistake committed by sheer oversight and inadvertence in the preparation of title and mal-identification of respective properties, the exchange of properties between DBP, represented by Fernando G. Lagahit and Mr. Rolando Felipe married to Divina I. Kimhoko is not subject to the capital gains tax imposed under Section 24 (D) of the Tax Code of 1997. (BIR Ruling No. DA-(I-014) 202-09 dated April 21, 2009) Furthermore, such exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997 since the transaction does not involve any monetary consideration. It is, however, subject to the documentary stamp tax of P15.00 on the notarial acknowledgment pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-93 dated January 15, 1993; BIR Ruling No. 008-95 dated January 16, 1995; BIR Ruling Nos. DA-159-2002 dated September 12, 2002 and DA-155-2002 dated September 11, 2002) 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. STHAID Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue