BIR Ruling No. 300-14

July 24, 2014 BIR RULING NO. 300-14 Section 24 (D) (1) of the Tax Code of 1997, as amended; Sections 188 & 196 of the Tax Code of 1997, as amended; BIR Ruling No. 484-12; BIR Ruling No. 360-11 Ms. Nonie Young Lo 1212 Penafrancia Street, Paco, Manila Gentlemen : This refers to your undated letter requesting from this Office, for an opinion on the tax consequences of the Deed of Exchange of Real Properties executed by and between your husband RAMONITO C. LO and VIVENCIO C. LO, as noted by the Regional Trial Court of Manila, Branch 14, National Capital Judicial Region, in its Order dated July 15, 2013 in Civil Case No. 12-127303. It is represented that RAMONITO C. LO, married to Nonie Young Lo, with residence and postal address at 1212 Penafrancia Street, Paco, Manila, is the registered and absolute owner of three (3) parcels of land, including improvements thereon, covered under Transfer Certificates of Title (TCT), particularly bounded and described as follows: 1.) Transfer Certificate of Title No. T-164837 "A parcel of land (Lot 2187-D of the subdivision plan Psd-04-002587, being a portion of lot 2187, Cad-278, Sta. Cruz, Cadastre, LRC Record No. 1941), situated in the Barrio of Callios, Municipality of Sta. Cruz, Province of Laguna, Island of Luzon. Bounded on the NE., along line 1-2 by Lot 2187-C of the subdivision plan; on the SE., along Line 2-3 by lot 2254; on the SW., & SE., along lines 3 to 6 by Lot 2188; on the SE., along line 6-7 by Lot 2189; on the W., along line 7-8 by lot 2192; and on the NW., along lines 8 to 10-1 by Lots 2186, 2185 & 2184 all of Cad-278, Sta. Cruz Cadastre. Containing an area of ONE THOUSAND ONE HUNDRED AND FIVE SQUARE METERS (1,105 sq.m.)." HIaSDc 2.) Transfer Certificate of Title No. T-164838 "A parcel of land (Lot No. 2188 of the Cadastral Survey of Santa Cruz), with the improvements, situated in the Barrio of Callios, Municipality of Sta. Cruz. Bounded on the NE., and NW., by Lot No. 2187; on the SE., by Lot No. 2264; and on the W., by Lot No. 2189. Containing an area of ONE THOUSAND ONE HUNDRED AND SIXTY SIX SQUARE METERS (1,166 sq.m.)." 3.) Transfer Certificate of Title No. T-164922 "A parcel of land (Lot No. 2186 of the Cadastral survey of Santa Cruz), with the improvements thereon, situated in the Barrio of Callios, Municipality of Sta. Cruz. Bounded on the NE., by Lot No. 2185; on the SE., by Lot Nos. 2187 and 2192; on the SW., by a canal; and on the NW., by the Provincial Road. Containing an area of ONE HUNDRED AND TWENTY SEVEN SQUARE METERS (127 sq.m.)." that all of the afore-stated Titles were issued by the Registry of Deeds of the Municipality of Sta. Cruz, Province of Laguna; and that the afore-stated properties are all located at Barrio Callios, Municipality of Sta. Cruz, Province of Laguna. On the other hand, VIVENCIO C. LO, single, of legal age with residence and postal address at Montserrat Subdivision, Sto. Angel Central, Laguna, is the registered and absolute owner of a real property, including improvements thereon covered under Transfer Certificate of Title (TCT), particularly described and bounded as follows: 1.) Transfer Certificate of Title No. T-242616 "A parcel of land (Lot 3690-C of the subdivision plan, Psd-28702, being a portion of Lot 3690 of the Cadastral Survey Sta. Cruz, LRC Cad. Record No. 1955), situated in the Municipality of Sta. Cruz, Province of Laguna. Bounded on the SE., along line 1-2 by Lot No. 3690-D of the subdivision plan on the SW., along line 2-3 by Lot 4514 of the sta. Cruz Cad. On the NW., along line 3-4 by lot 3690-A and along line 4-5 by Lot 3690-B; on the NE., along line 5-1 by Lot 4441, Sta. Cruz cad. and Road to Calumpang. Containing an area of FIVE THOUSAND SQUARE METERS (5,000 sq.m.)." that the aforementioned Transfer Certificate of Title (TCT) No. T-242616 was issued by the Registry of Deeds of the Municipality of Sta. Cruz, Province of Laguna; and that the abovementioned property is located at Barangay Labuin, Sta. Cruz, Laguna. SEIacA On June 15, 2013, VIVENCIO C. LO executed a Deed of Exchange of Real Properties before a Notary Public in the Province of Laguna followed by RAMONITO C. LO, who executed the same on June 25, 2013, before a Notary Public in the City of Manila. Both parties voluntary agreed to exchange their respective properties together with the improvements thereon by virtue of a Deed of Exchange in order to buy peace and harmony as family members. In reply, please be informed that Section 24 (D) (1) of the Tax Code of 1997, as amended , provides, viz. : Section 24. Income Tax Rates. (D) Capital Gains from Sale of Real Property. (1) In General. The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, is hereby imposed upon the capital gains presumed to have been realized from the sale, exchange and other dispositions 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: . . . Although the execution of the Deed of Exchange of Real Properties was noted by the Regional Trial Court of Manila, Branch XIV in its Order dated July 15, 2013, and in as much as it partakes the nature of voluntary exchange, the exchange of properties between two (2) parties is covered by the clause "other dispositions of real property" under Section 24 (D) of the Tax Code of 1997, as amended, and therefore subject to capital gains tax imposed therein. ( BIR Ruling No. 484-12 dated July 30, 2011 ) The exchange of the properties being a disposition of real properties under Section 24 (D) of the Tax Code of 1997, as amended, is likewise subject to the documentary stamp taxes imposed pursuant to Section 188 and Section 196 of the National Internal Revenue Code (NIRC) of 1997, as amended. ( BIR Ruling No. 360-11 dated September 30, 2011 ) 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