Request for Exemption from Payment of Capital Gains Tax on Swap of Lots

December 16, 1992 BIR RULING NO. 355-92 21 (e) 97-91 355-92 Severina Realty Corporation 80 R. Magsaysay Blvd. Extension Quezon City Attention: Mr . Marcelius R . Lim Vice-President Gentlemen : This refers to your letter dated July 30, 1992 seeking exemption from payment of capital gains tax on the swap of lots which your office effected vis-a-vis of your customer. cdll In reply, please be informed that this Office finds the exchange of lots by Severina Realty Corporation and spouses Dumaraos not to be subject to capital gains tax. Under Section 21(e) of the Tax Code, as amended, 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, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. We find that the provision of law referred to does not find application in the case at hand because while there was a swap or exchange of real properties there was NO consideration involved, and the parties did not gain from such exchange. It appears that Severina Realty Corporation is a domestic corporation engaged in the real estate business; that on July 10, 1991, a deed of absolute sale was executed between your company and spouses Dumaraos involving a 120 square meter lot located at Lot 11, Block 8, Westborough Homes Subdivision, Paraaque, Metro Manila, with the assurance of your company that the property is a rectangular lot; that on January 16, 1992, a relocation survey was made by a Geodetic Engineer and found out that the abovementioned lot is not rectangular in shape as previously agreed upon by the parties; that upon the request of the spouses to change their lot with a rectangular one, a deed of exchange was executed dated July 27, 1992 between your company and the spouses substituting Lot 11, Block 8, Westborough Homes Subdivision, owned by the spouses with a rectangular (120 sq. meter) lot at Lot 31, Block 4 of the same subdivision, owned by your company, hence this request. Parenthetically, it may be stated that the matter of transferring the certificates of title already in the names of the lot owners, although technically making the latter owners of the properties transferred, is resorted to only for administrative expediency. The deed giving effect to the switch of lots between Severina Realty Corporation and the spouses Dumaraos is however, subject to the documentary stamp tax of P3.00 pursuant to Section 188 of the Tax Code, as amended. llcd Very truly yours, JOSE U. ONG Commissioner of Internal Revenue