BIR Ruling No. 298-13

August 2, 2013 BIR RULING NO. 298-13 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 460-11 Eloisa E. De Lemos 358 Soriano St.,Tondo, Manila Madam : This refers to your letter dated November 12, 2012 duly indorsed by Revenue Region No. 6-Manila, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. It is represented that Gerardo V. De Lemos, Jr.,married to Eloisa E. De Lemos (De Lemos) is the registered owner of a parcel of land, identified as Lot 13-A, Block 162, Case 4, RI-1004, LRC Record No. covered by Transfer Certificate of Title (TCT) No. 282943 with an area of thirty square meters and fifteen square decimeters (30.15 sq.m.),more or less. On the other hand, Spouses Leonardo Manalaysay and Corazon Ong Manalaysay (Manalaysay) are the registered owners of a parcel of land, identified as 13-B, Block 162, Case 4, RI-1004, LRC Record No. covered by TCT No. N-294206 with an area of thirty square meters and fifteen square decimeters (30.15 sq.m.),more or less. However, it was found out later that their respective improvements are erected thereon were inadvertently interchanged, that, instead of Lot 13-B being sold to De Lemos, it was Lot 13-A and vice versa in the case of Manalaysay. In order to correct the foregoing mistake or inadvertence, De Lemos and Manalaysay executed a Deed of Exchange dated November 09, 2012 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. 460-11 dated November 24, 2011) DISTcH It appears that the error was committed by the owners in erecting their respective improvements on the lots. Such that De Lemos constructed on Lot 13-B (Manalaysay) and Manalaysay constructed on Lot 13-A (De Lemos).It can be gleaned from the Deed of Absolute Sale dated May 22, 2008 executed by Lydia Torres, Gloria Torres Sta. Cruz, Arlyn Torres Soriano and Jennifer Torres in favor of De Lemos that the property subject of the sale is Lot 13-A. In addition, the presence of the annotation in TCT. 167048 1 issued in the name of Arturo Torres married to Lydia Torres with Entry No. 1234, reflected the Deed of Sale executed in favor of Manalaysay covering Lot 13-B. Hence, the delivery of titles corresponding to De Lemos and Manalaysay seems to be in order because there are no errors which are manifest and the presence of the signatures of all the parties to the transaction just shows that said executed document was checked for errors. There being no apparent mistake or error that necessitates the exchange of the properties between the parties, the requested tax exemption has no legal basis to be granted. The exchange of properties between De Lemos and Manalaysay are subject separately and distinctly to the 6% capital gains tax based on the fair market value or zonal value of the properties, whichever is higher. Moreover, pursuant to Section 196 of the Tax Code of 1997, 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. (BIR Ruling No. 460-11 dated November 24, 2011) Regrettably, your request that you be exempted from the payment of capital gains tax and documentary stamp tax is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Subdivided into two TCTs No. 247866 for Lot 13-B (now 247867) and 247865 for Lot 13-A (now 282943).