BIR Ruling No. 315-14

August 11, 2014 BIR RULING NO. 315-14 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 460-11 Atty. Gerardo D. Inocencio 0479 Agnaya, Plaridel, Bulacan 3004 Sir : This refers to your letter dated June 17, 2013, requesting for a Ruling on the tax consequences of the Deed of Exchange executed by and between Sps. Felimon R. Florendo, Jr. and Meliza G. Florendo (referred hereto as the FIRST PARTY), and Sps. Armando R. Serrudo and Marilyn V. Serrudo (referred hereto as the SECOND PARTY) in connection with the exchange of their respective properties without monetary consideration. Documents submitted disclosed that the FIRST PARTY are the registered owners of a parcel of land, (Lot 28-Blk. 1 of the cons-subd. Pcs-03-001175, being a portion of the cons. Lot 3295-B (LRC) Psd-306010 & lot 3296, Mal. Cad. LRC Rec. No.) situated in the Bo. of Mojon, Mun. of Malolos, Prov. of Bulacan . . . covered by Transfer Certificate of Title (TCT) No. T-77830 containing an area of ONE HUNDRED TWENTY (120) square meters, more or less; that the SECOND PARTY are the registered owners of two (2) adjacent parcels of land (Lot 26-B of the Subd. Plan Psd-03-105575, being a portion of Lot 26, blk. 1 Pcs-03-001175 LRC Rec. No.) situated in the Bo. of Mojon, Mun. of Malolos, Prov. of Bulacan . . . covered by Transfer Certificate of Title (TCT) No. T-134894 containing an area of SIXTY (60) square meters, more or less, and the second lot (Lot 26-A of the Subd. Plan Psd-03-105575, being a portion of Lot 26, blk. 1 Pcs-03-001175 LRC Rec. No.) situated in the Bo. of Mojon, Mun. of Malolos, Prov. of Bulacan . . . covered by Transfer Certificate of Title (TCT) No. 039-2012008147 containing an area of SIXTY (60) square meters, more or less; that the SECOND PARTY mistakenly caused the construction of an unfinished, undeclared structure on Lot 28 owned by the FIRST PARTY which the SECOND PARTY misidentified as Lot 26; and that the demolition of the structure built by the SECOND PARTY on Lot 28 owned by the FIRST PARTY would entail a lot of expenses and wastage on his part. IACDaS In order to correct the foregoing mistake, both parties executed a Deed of Exchange dated June 17, 2013, wherein they mutually agreed to exchange their respective properties inasmuch as they have exactly the same size and shape without any monetary consideration. In reply, please be informed that Section 24 (D) (1) of the Tax Code of 1997, as amended, 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) While it is represented that the SECOND PARTY inadvertently committed a mistake in constructing a structure on Lot 28 owned by the FIRST PARTY, all the records of their respective properties are in order from the time they were separately acquired up to the time that they were registered and were issued the corresponding Transfer Certificates of Title (TCTs) in their name. There being no error that necessitates the exchange of the properties between the parties, tax exemption cannot be granted and has no factual and legal basis. Such being the case, both exchanging parties i.e. , Sps. Felimon R. Florendo, Jr. and Meliza G. Florendo and Sps. Armando R. Serrudo and Marilyn V. Serrudo 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, as imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. HcaDIA 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) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue