BIR Ruling No. 460-11

November 24, 2011 BIR RULING NO. 460-11 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. DA-(I-014) 202-09; BIR Ruling No. DA-159-2002; BIR Ruling No. DA-155-2002 Felicidad Narag Bayo, Iguig, Cagayan Madam : This refers to your letter dated September 24, 2010, requesting exemption from capital gains and documentary stamp taxes on your exchange of properties without monetary consideration. It is represented that on June 1, 2010, a Deed of Absolute Sale was executed by Felicidad Narag whereby she transferred her ownership over a one half (1/2) portion of Lot 134, designated as Lot 134-B containing an area of Four Hundred Twenty Seven (427) sq.m. covered by Transfer Certificate of Title (TCT) No. T-69001, to Judith A. Abrigo. However, it was found out that the one half (1/2) portion sold should have been Lot 134-A instead of Lot 134-B for which mistake TCT No. T-177594 and TCT No. T-17795 in the name of Felicidad Narag and Judith A. Abrigo, respectively, were issued by the Register of Deeds of Tuguegarao City. In order to correct the foregoing mistake or inadvertence, Judith A. Abrigo, as the buyer/successor-in-interest over one half (1/2) portion owned by Felicidad Narag, deemed it right to execute a deed whereby she and Felicidad Narag will swap their respective properties. Hence, the execution of a Deed of Exchange of Real Property whereby it is stated therein that Judith A. Abrigo and Felicidad Narag swapped their respective properties by transferring the title of the property described in the title held by Judith A. Abrigo and Felicidad Narag, and vice versa. The said exchange is made 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. DA-(I-014) 202-09 dated April 21, 2009) TaDSHC As represented, the parties executed the Deed of Sale on June 1, 2010, and errors were inadvertently committed, such that the property sold to Judith A. Abrigo should be Lot 134-A, with an area of Four Hundred Twenty Seven (427) sq.m. covered by Transfer Certificate of Title (TCT) No. T-177594, instead of Lot 134-B. However, the Deed of Sale seems to be in order because there are no typographical errors which are manifest, and in addition, the presence of the signatures of all the parties to the transaction just shows that said executed document was checked for errors. The Deed of Sale in favor of Judith Abrigo is Lot 134-B, the TCT issued to her covers Lot 134-B, and hence there is no mistake that was made. Moreover, the Subdivision Plan shows no apparent mistake in the assignment of the portion for Abrigo. 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., Judith A. Abrigo and Felicidad Narag 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 Nos. DA-159-2002 dated September 12, 2002 and DA-155-2002 dated September 11, 2002) 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