BIR Ruling No. 361-14

September 22, 2014 BIR RULING NO. 361-14 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. 460-11 Sps. Julius Cesar Perez & Perla Lorzano Ireneo Vida Sr. St., Zone 4 Socorro, Oriental Mindoro Sps. Ramon Vargas & Leonila De Roxas Ireneo Vida Sr. St., Zone 4 Socorro, Oriental Mindoro Gentlemen : This refers to the letter of Oriental Mindoro Provincial Prosecution Office dated February 7, 2012, received by this Office on February 23, 2012, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. It is represented that Sps. Julius Cesar Perez & Perla Lorzano are the registered owners of a parcel of land, identified as Lot 4, Block 7, of the subdivision plan, Psd-34712, being a portion of Lot D, described on plan, Psd-22852, Hom. Pat. No. H-206261 covered by Transfer Certificate of Title (TCT) No. 113139 with an area of three hundred square meter (300 sq.m.), more or less. On the other hand, Sps. Ramon D. Vargas and Leonila de Roxas are the registered owners of a parcel of land, identified as Lot 5, Block 7, of the subdivision plan, Psd-34712, being a portion of Lot D, described on plan, Psd-22852, Hom. Pat. No. H-206261 covered by Transfer Certificate of Title (TCT) No. 103946 with an area of three hundred square meter (300 sq.m.), more or less. However, it was found out later that there was a mix-up with the titles when Mr. Marcos M. Vargas (Attorney-in-Fact of Prescillo F. Marte), 1 who by inadvertence and probably considering that the lots have exactly the same area, erroneously gave the parties titles not corresponding to what they respectively bought, such that, the title given to Sps. Julius Cesar Perez & Perla Lorzano pertained to Lot 4 when in fact, it is Lot 5 while the title given to Sps. Ramon D. Vargas and Leonila de Roxas pertained to Lot 5 when in fact, it is Lot 4. ACcISa In order to correct the foregoing mistake or inadvertence, Sps. Julius Cesar Perez & Perla Lorzano and Sps. Ramon D. Vargas and Leonila de Roxas executed a Deed of Exchange dated October 28, 2011 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) As represented, the errors were inadvertently committed in delivering the titles by Mr. Marcos M. Vargas (Attorney-in-Fact of Prescillo F. Marte), such that the property given to Sps. Julius Cesar Perez & Perla Lorzano should be Lot 5, instead of Lot 4 and the property given to Sps. Ramon D. Vargas and Leonila de Roxas should be Lot 4, instead of Lot 5. However, it can be gleaned that per Entry No. 4142, Doc. No. 4142 in TCT No. RT-83 (T-43209) in the name of Florencia Marte, married to Prescillo Marte, the owners, through Attorney-in-Fact Marcos Vargas, sold the property described therein to spouses Ramon D. Vargas and Leonila de Roxas per Deed of Absolute Sale dated September 19, 1998. As a result, TCT No. RT-83 (T-43209) was cancelled by TCT No. T-103946 issued in the name of the spouses Ramon D. Vargas and Leonila de Roxas. On the other hand, per Entry No. 3505, Doc. No. 3505 in TCT No. T-91809 in the name of the spouses Anselmo Delos Reyes and Iluminada Dimaano, the owners sold the property described therein to the spouses Julius Cesar Perez and Perla Lorzano per Deed of Sale dated August 31, 1999. As a result, TCT No. T-91809 was cancelled by TCT No. T-113139 issued in the name of spouses Julius Cesar Perez & Perla Lorzano. Hence, the delivery of titles corresponding to the respective buyers seems to be in order because there are no errors which are manifest. In addition, the presence of the annotation in T-113139 issued to Sps. Julius Cesar Perez & Perla Lorzano that they mortgaged the same to Allied Savings Bank under Entry No. 1040, just shows that the ownership under T-113139 belongs to Sps. Julius Cesar Perez & Perla Lorzano. 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. Such being the case, both exchanging parties i.e., Sps. Ramon D. Vargas and Leonila de Roxas and Sps. Julius Cesar Perez & Perla Lorzano 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. IESAac Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Annotated in TCT No. RT-83 (T-43209) now TCT No. 103946.