Exemption from the Capital Gains Tax on the Exchange of Property

April 24, 1987 BIR RULING NO. 116-87 035-c 279-86 116-87 Gentlemen : This refers to your letter dated September 26, 1986 requesting exemption from the capital gains tax of the exchange on October 20, 1986 of the property of your client, Pechatan Corporation, situated at the municipality of Nasugbu, Province of Batangas, together with all the improvements thereon, its title thereto being evidenced by Transfer Certificate of Title No. T-46905 of the land records of the Registry of Deeds, Nasugbu, Batangas with that of the property of Urban Estates, Inc. situated also at the Municipality of Nasugbu, Province of Batangas, its title thereto being evidenced by Transfer Certificate of Title No. T-43007 of the land records of the Registry of Deeds, Nasugbu, Batangas. In reply thereto, I have the honor to inform you that Section 21(c) [formerly Section 34(h)] of the Tax Code, as amended by Executive Order No. 37 is explicit that only natural persons or individuals are liable to the final capital gains tax prescribed therein. Such being the case, the parties to the exchange are not subject to the final capital gains tax prescribed by said Section 21(c) of the Tax Code, as amended. However, under Section 35 (c)(1) of the Tax Code, as amended, upon the sale or exchange of property, the entire amount of the gain or loss as the case may be, shall be recognized. Accordingly, the corporation that will derive any gain on the aforementioned exchange transaction shall be subject to the ordinary corporate income tax rate prescribed under Section 24(a) of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner