Bir Ruling (Da 576 06)

September 22, 2006
BIR RULING [DA-576-06]
RR 16-05; BIR Ruling Nos. 329-92; DA-158-02;

021-96; 16-05; 024-05
Laya Mananghaya & Co.

Certified Public Accountants & Management Consultants
22/F, Philamlife Tower, 8767 Paseo de Roxas
Makati City 1226
Metro Manila
Attention: Francisco G. Tagao

Head, Tax & Corporate Services
Ronald L. Carreon
Director, Tax & Corporate Services
Gentlemen :
This refers to your letter dated July 28, 2006, requesting on behalf of your
client, Fort Bonifacio Development Corporation (FBDC), confirmation of your
opinion on the tax implications arising from the conveyance of the lots to DPWH and
the lot replacements that FBDC facilitated in transferring to the residents and lot
owners affected by the construction of the KALAYAAN VIADUCT PROJECT of the
DPWH.
Background
The KALAYAAN VIADUCT PROJECT is a public works project to improve

public road network linking the areas along the eastern and western flanks of the
Epifanio de los Santos Avenue, specifically the Makati and Taguig areas. The project
provides an alternate route to the main road artery of Kalayaan Avenue directly
improving access to the eastern towns of Taguig and Pateros as well as the C5 road
network that is now a main artery on the eastern side of the metropolitan area
accessing the southern part of the National Capital Region. Private lots along the
Copyright 2018 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2018 1
construction route are affected, necessitating their expropriation while at the same
time it will enhance the development of the Fort Bonifacio area as the project
provides direct access to it from the Makati area.
On October 28, 1996, a Memorandum of Agreement (hereinafter referred to as

the "1996 MOA") was entered into between the Department of Public Works and
Highways (DPWH), the Bases Conversion Development Authority (BCDA) and Fort
Bonifacio Development Corporation (FBDC) to coordinate the construction of vital
roads and other infrastructures of the government that will enhance the development
of Fort Bonifacio, specifically the KALAYAAN VIADUCT PROJECT. As provided
for in the agreement, DPWH is to expropriate or acquire land for off-site road and
other infrastructure projects and coordinate with FBDC in the manner of over all
construction supervision. FBDC and BCDA were to jointly provide and transfer to
DPWH all incremental cost estimates in the pre-construction and construction of
various works, particularly the development of the relocation site for the affected
residents and right of way cost. TcHCIS
Sometime in May 1997, the residents affected by the KALAYAAN VIADUCT

PROJECT executed a Memorandum of Agreement (1997 MOA) wherein they agreed
to convey their ownership or rights over their lots to DPWH in order to avoid their
eventual expropriation. DPWH sought the assistance of FBDC to address the
demands of the residents. Pursuant to the 1997 MOA, FBDC was made fully
responsible for the provision of replacement lots for all residents displaced as well as
for the compensation of each resident for the replacement value of the improvements
each had introduced to his lot. In addition to this obligation, FBDC will also donate
certain lots to the City of Taguig to serve as service roads to the replacement lots
given to the residents. FBDC shall also shoulder subsequent expenses resulting from
the implementation of the transfer of the properties.
For purposes of complying with its obligation of providing replacement lots to

the affected residents, FBDC requested the BIR for the valuation of several parcels of
lots located at Taguig Metro Manila, which are intended to be given to the residents
as replacement lots. On January 4, 2006, the Asset Valuation, Division of the BIR
issued TCRPV Resolution No. 82-2005 retaining P7,500.00 as the zonal value per
square meter of several properties of FBDC for purposes of expropriation. This
valuation is valid up to January 3, 2007. The said FBDC lots have fair market values
ranging from P2,000.00 to P2,500.00, with road lots at about P500.00/sq. m as per
latest tax declarations.
Consequent to the foregoing agreements, forty-two (42) affected residents are

required to transfer the ownership of their lots or portions thereof for the
implementation of the KALAYAAN VIADUCT PROJECT. Lots over which the
flyover has a direct right of way are to be transferred directly to DPWH. Other lots,
although not used directly for the flyover, are to be transferred directly by the affected
residents to other affected residents as part of the latter's compensation to implement
the KALAYAAN VIADUCT PROJECT. Some of these affected lots, however, are
presently prohibited from being subdivided pursuant to Presidential Proclamation No.
518 which prohibits subdivision of lands with lot areas less than 50 square meters.
Considering that these lots are necessary to the implementation of the KALAYAAN
VIADUCT PROJECT, the parties agreed that a right of way in favor of the DPWH
will be initially annotated on the titles of these lots pending the issuance of permission
from the DENR allowing their subdivision. It was intended, however, that these lots
shall be transferred to DPWH after the issuance of the DENR permit.
The affected residents will be compensated with replacement lots which shall
either come from FBDC relocation lots or from the residual lots surrendered by other
residents, or replacement value of the improvements each had introduced to his lot, or
both. A more detailed outline of the specific lot transfers are attached herewith as
Annex "D".
Rulings Requested
A confirmation is now sought on the following:
I. No Income or Capital Gains tax or Final or Creditable Withholding Tax
A. Transfer of FBDC Relocation Site Lots to DPWH
Following the doctrine of involuntary conversion, the transfer of FBDC

relocation lots to the affected lot owners is not subject to capital gains, income or
withholding taxes.
The doctrine of involuntary conversion states that if property, as a result of its

destruction, theft or seizure, or an exercise of the power of requisition or
condemnation or the threat or imminence thereof, is compulsorily or involuntary
converted into property similar or related in service or use to the property so
converted, no gain shall be recognized. This doctrine of involuntary conversion of
property is rooted in the American case of Herder v. Helvering, 23 AFTR, p. 322,
where it was ruled that:
"Gains from the involuntary conversion of a property is not subject to

income tax to the recipient if the property, as a result of its destruction, in
whole or in part, theft or seizure, or an exercise of power of requisition or
condemnation or the threat or imminence thereof is compulsorily or
involuntarily converted. into property similar or related in service or use to the
property so converted. . ."
This doctrine of involuntary conversion has been applied by the US Tax Courts
in cases of involuntary sale of real properties where the landowners are left with no
recourse except to enter into sale agreements with the government. (Maixner v.
Commissioner of Internal Revenue, 30 T.C. 191, 1959; Masser v. Commissioner of
Internal Revenue, 33 T.C. 191, 1959) HEcSDa
Pursuant to the obligation imposed by the DPWH, FBDC is left with no choice
except to provide the relocation lots to the residents in lieu of their eventual
expropriation by the DPWH and applying the doctrine of involuntary conversion, no
taxable gain that may have been derived pursuant to the implementation of the
KALAYAAN VIADUCT PROJECT (BIR Ruling No. 329-92, dated 18 November
1992; BIR Ruling No. DA-158-2002, dated 12 September 2002; BIR Ruling No.
DA-203-03, dated 30 July 2003)
B. Transfer of the affected lots by the residents to the DPWH
The transfer of the affected lots by the residents to the DPWH is an involuntary
conversion of their lots for public purpose. The residents are constrained to surrender
their lots in lieu of their expropriation. Consequently, the gains, if any, either
consisting of monetary consideration or their acquisition of FBDC provided lots or
residual portion of lots surrendered by other residents, is a result of the involuntary
conversion of their lots surrendered for the purpose of implementing the
KALAYAAN VIADUCT PROJECT. As such, the gain is exempt from capital gains
tax or income tax or withholding tax. (BIR Ruling No. DA-203-03, dated 30 July
2003; BIR Ruling Nos. 373-87 dated 23 November 1987; 429-88 dated 02 September
1988 and 329-92 dated 18 November 1992)
C. Transfer of portions of the residual lots to other affected residents
The transfers of portions of residual lots to other affected residents are not
subject to income tax or to capital gains tax or withholding tax on the part of the
residents following the doctrine of involuntary conversion. (BIR Ruling No. 329-92,
dated 18 November 1992; BIR Ruling No. DA-158-2002, dated 12 September 2002;
BIR Ruling No. DA-203-03, dated 30 July 2003)
II. Donor's Tax
A. No Donor's tax on the Donation of Lots to the City of Taguig

The intended donation of the access roads and easements in favor of the City
of Taguig is exempt from donor's tax under Section 101 (A) (2) of the Tax Code. The
direct donation of the lots to the City of Taguig properly falls under the above cited
provision of the Tax Code as a donation to a political subdivision of the National
Government, and thus, exempt from the imposition of donor's tax. (BIR Ruling No.
021-96 dated 21 February 1996; BIR Ruling No. DA-202-99 dated 30 March 1999).
B. No Donor's Tax on the Transfer of FBDC Relocation Lots to the

Residents
The transfer of FBDC relocation lots to the residents is not a donation subject
to donors' tax considering that the transfer of the relocation lots is with sufficient
business consideration and is not a mere act of liberality. The enhancement of
Bonifacio Global City, as a result of the implementation of the KALAYAAN
VIADUCT PROJECT, is sufficient business consideration on the part of FBDC to
remove such transfer from the ambit of a donation subject to donor's tax (BIR Ruling
No. 16-05, dated 24 August 2005; BIR Ruling DA-444-05, dated 27 October 2005,
BIR Ruling DA-136-05, dated 7 April 2005).
C. No Donor's Tax on the Monetary Consideration Given by FBDC to the

Affected Residents as Part of Compensation
The payment by FBDC of monetary consideration to the residents is not a

donation subject to donor's tax considering that such payment is for a sufficient
business consideration and is not a mere act of liberality. The enhancement of
Bonifacio Global City, as a result of the implementation of the KALAYAAN
VIADUCT PROJECT, is sufficient business consideration on the part of FBDC to
remove such transfer from the ambit of a donation subject to donor's tax (BIR Ruling
No. 16-05, dated 24 August 2005; BIR Ruling DA-444-05, dated 27 October 2005,
BIR Ruling DA-136-05, dated 7 April 2005). cHaADC
III. Documentary Stamp Tax
A. Transfer of FBDC Relocation Lots to Affected Residents
The contemplated direct transfer of the FBDC replacement lots to the affected
residents is subject to DST under Section 196 of the Tax Code. In BIR Ruling DA
203-03, dated 30 June 2003, the BIR ruled that while the exchange of properties
resulting from an involuntary conversion is not subject to the corporate income tax or
to the capital gains tax nor to the creditable withholding tax, the same shall be subject
to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997.
Furthermore, the notarial acknowledgment to the said deed is subject to the
documentary stamp tax of P15.00 pursuant to Section 188 of the same Code.
B. Documentary Stamp Tax on Transfer of Lots of the Affected Residents
The transfer of lots by the affected residents both to DPWH and to other
residents, resulting from the implementation of the KALAYAAN VIADUCT
PROJECT, is subject to DST under Section 196 of the Tax Code. The DST shall be
imposed on the total consideration received by the residents which consists of
replacement lots or monetary consideration, or both.
IV. Value-Added Tax
A. VAT on Transfer of Relocation Lots by FBDC
The transfer of the relocation lots by FBDC is subject to the 12% VAT.
Considering that the relocation lots of FBDC were held either for sale or lease in
FBDC's ordinary course of trade or business, their conveyance to the residents shall
be subject to VAT. (Sec. 106 of the Tax Code; Sec. 4.106-3 of RR 16-05; BIR Ruling
No. 024-05, dated 23 December 2005).
B. VAT on Donation of Lots to the City of Taguig
The donation of lots to the City of Taguig by FBDC is a completed gift subject
to VAT. The donation by FBDC of its lots to the City of Taguig is a completed gift
that may be treated as a deemed sale transaction under Section 4.1.06-3 of RR 16-05
and Sec. 106 of the Tax Code. This is so because the lots to be donated to the City of
Taguig were held by FBDC either for sale or lease in the ordinary course of its
business.
C. No VAT on the Transfer of Lots by the Affected Residents
The transfer of lots by the residents to DPWH is not subject to VAT. The
transfers of the lots from the residents to DPWH are not made in the course of trade
or business nor were the affected lots held by the residents for sale or lease in the
ordinary course of trade or business. The transfer of such lots cannot be considered as
a transaction subject to VAT. (BIR Ruling No. 024-05, dated 23 December 2005).
D. No VAT on the Transfer of Replacement Lots to Other Residents
The residual lots to be transferred to the residents are not held for sale or lease
in the ordinary course of trade or business. The transfers of the residual lots to the
other residents are not made in the course of trade or business nor were the affected
lots held by the transferring residents for sale or lease in the ordinary course of trade
or business. Thus, we believe that the transfer of these lots cannot be considered as
transactions subject to VAT. (BIR Ruling No. 024-05, dated 23 December 2005)
V. Zonal Value of Lots Covered by TCRPV Resolution No. 82-05 remains at

P7,500.00 per square meter
TCRPV Resolution No. 82-2005 was issued by the BIR precisely to determine
the zonal value of the FBDC replacement lots and the lots to be donated to the City of
Taguig for purposes of implementing the KALAYAAN VIADUCT PROJECT. The
said resolution was issued by the BIR in response to the request of FBDC for the
valuation of several parcels of lots located at Taguig, Metro Manila, which are
intended to be given to the residents pursuant to FBDC's obligation under the 1996
and 1997 MOAs. Thus, the zonal value of the FBDC relocation lots and the lots to be
donated to the City of Taguig covered by the said resolution should remain as
P7,500.00 per square meter for purposes of the implementation of the KALAYAAN
VIADUCT PROJECT. TCDHIc
Further, the transfer of the replacement lots by FBDC to the affected residents
for the implementation of the KALAYAAN VIADUCT PROJECT satisfies the
condition imposed by TCRPV Resolution No. 82-2005, that the zonal value of
P7,500.00 per square meter applies for expropriation purposes only. Pursuant to its
obligation under the 1996 and 1997 MOAs, FBDC is left with no choice except to
provide the relocation lots to the residents as compensation for the latter's surrender of
lots to DPWH. Hence, such transfer of property is akin to expropriation of lots for
purposes of applying the P7,500.00 per square meter zonal value pursuant to TCRPV
Resolution.
VI. The Zonal Value of the FBDC Lots as Basis in Imposing the VAT and DST
The VAT and DST, which may be imposed on the transfer of the FBDC
relocation lots, should be based on the zonal values of the said lots of P7,500.00 as
per TCRPV Resolution No. 82-2005 considering that the same are higher than the fair
market values of said lots, as stated in the respective tax declarations, which ranges
from P2,000.00 to P2,500.00, with road lots at about P500.00/sq. m.
VI. Ruling as basis for issuance of Certificate Authorizing Registration and Tax
Clearance Certificate
Finally, it also requested that the requested ruling be a sufficient basis for the
BIR to issue the Certificates Authorizing Registration and Tax Clearance Certificates,
for all the property transfers effected pursuant to the details of the attached annexes of
properties and the manner of compensation received on account of the
implementation of the KALAYAAN VIADUCT PROJECT, including the subsequent
transfer of properties initially annotated with the right of way in favor of DPWH as
well as the transfers of properties which are presently unregistered/untitled and their
subsequent registration/titling.
BIR Reply
We reply as follows:
1. Income Tax/Capital Gains Tax
Section 27(A) of the Tax Code of 1997, as amended by RA 9337 reads as

follows:
"(A) In General. — Except as otherwise provided in this Code, an

income tax of thirty-five percent (35%) is hereby imposed upon the taxable
income derived during each taxable year from all sources within and without
the Philippines by every corporation, as defined in Section 22(B) of this Code
and taxable under this Title as a corporation, organized in, or existing under
the laws of the Philippines: Provided, That effective January 1, 2009, the rate
of income tax shall be thirty percent (30%).
xxx xxx xxx"
On the other hand, sale, exchange or disposing lands and/or buildings which
are not actually used in the business of a corporation and treated as capital assets is
subject to the six percent (6%) capital gains tax imposed under Sec. 27(D)(5) of the
Tax Code.
For purposes of determining whether income received is subject to the 35%

normal income tax rate or to capital gains tax, the business of the taxpayer is
paramount in concluding whether the real property sold, transferred or disposed by
the taxpayer is an ordinary asset or a capital asset. In this connection, Sec. 3 of
Revenue Regulations (Rev. Regs. 7-2003 provides the following guidelines:
"a. Taxpayers engaged in the real estate business. — Real property

shall be classified with respect to taxpayers engaged in the real estate business
as follows: SHTEaA
1. Real Estate Dealer. — All real properties acquired by the real

estate dealer shall be considered as ordinary assets.
2. Real Estate Developer. — All real properties acquired by the real
estate developer, whether developed or undeveloped as of the time of
acquisition, and all real properties which are held by the real estate developer
primarily for sale or for lease to customers in the ordinary course of his trade
or business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real properties used
in the trade or business, whether in the form of land, building, or other
improvements, shall be considered as ordinary assets.
xxx xxx xxx
4. Taxpayers habitually engaged in the real estate business. — All

real properties acquired in the course of trade or business by a taxpayer
habitually engaged in the sale of real estate shall be considered as ordinary
assets. Registration with the HLURB or HUDCC as a real estate dealer or
developer shall be sufficient for a taxpayer to be considered as habitually
engaged in the sale of real estate. If the taxpayer is not registered with the
HLURB or HUDCC as a real estate dealer or developer, he/it may
nevertheless be deemed to be engaged in the real estate business through the
establishment of substantial relevant evidence (such as consummation during
the preceding year of at least six (6) taxable real estate sale transactions,
regardless of amount registration as habitually engaged in real estate business
with the Local Government Unit or the Bureau of Internal Revenue, etc.)."
In short, sale or disposition of real property classified as ordinary assets shall

be subject to income tax under said Sec. 27(A) of the tax Code, as amended and
consequently to creditable withholding tax.
The Doctrine of Involuntary Conversion
"Involuntary Conversion — if property (as a result of its destruction,

in whole or in part, theft or seizure, or an exercise of the power of requisition
or condemnation or the threat or imminence thereof) is compulsorily or
involuntarily converted into property similar or related in service or use to the
property so converted, or into money which is forthwith in good faith . . .
expended in the acquisition of other property, or in the acquisition of a control
of a corporation owning such other property, or in the establishment of a
replacement fund, no gain or loss shall be recognized. If any part of the
money is not so expended, the gain, if any, shall be recognized, but in an
amount not in excess of the money so expended." (MERTENS, Chap. 20, 121,
Vol., 3, pp. 337-338)
This doctrine is one of the several doctrines enunciated by US Courts to

explain the meaning of the term "income" and "realization of income." Indeed, this
doctrine has been discussed in the case of Herder v. Helvering, 23 AFTR, p. 322, viz:
The facts in the Herder v. Helvering case were: On January 15, 1934
fire destroyed the milling property owned by the partnership of George
Herder and R. L. Williams. For this loss, the partnership received $50,000 as
fire insurance proceeds. This amount was immediately distributed to the
partners, being pro-hated in accordance with their respective interest in the
partnership, namely, two-thirds to George Herder, and one-third to R. L.
Williams. George Herder received $33,333.67 under such distribution and that
$19,199.50 thereof represented his portion of the total amount received by the
partnership in excess of the adjusted cost basis of the property at the time of
its destruction. ATICcS
The Court held the said gain ($19,199.50) is not a realized income,
hence, not subject to income tax, (supra) pursuant to the rule that no realized
income may be recognized from a compulsory or involuntary conversion of a
property. This doctrine is one of the several doctrines enunciated by the
Courts in the U.S.A. that explain the meaning of the term "income" and
"realized of income".
Although under the foregoing Herder case the involuntary conversion of

property was the direct result of fire loss sustained by the partners and for which they
were compensated by the insurance, the doctrine of involuntary conversion was
nonetheless applied by the BIR in various cases in holding that the income or gain
from involuntary conversion of property is not recognized as realized income and
may not be subject to income tax, capital gains tax or withholding tax. 1(1)
In view of the foregoing, this Office is of the opinion as it hereby rules that —
A. Transfer of FBDC relocation lots to affected residents is not subject to

income tax and consequently, to withholding tax.
The construction of vital roads and other infrastructures/facilities of the

government that will enhance the development of Fort Bonifacio, including the
Kalayaan Viaduct Project was the subject of the 1996 MOA between the DPWH, the
BCDA and the FBDC; and subsequently, under the 1997 MOA, between DPWH,
FBDC, the City Government of Makati and all the RESIDENTS affected by
Buendia-Kalayaan Bonifacio Viaduct. Under the 1997 MOA, FBDC is tasked to
provide the replacement lot for all the displaced residents.
In BIR Ruling No. DA-158-2002 dated 12 September 2002, Manila Bay

Development Corporation (MBDC) and Public Estates Authority (PEA) entered into a
Deed of Exchange for the transfer of the land of PEA to MBDC, which shall serve as
payment for the lands required to be ceded by MBDC to PEA. Following the Manila
Jockey Club ruling (BIR Ruling No. 329-92, dated 18 November 1992), the BIR ruled
that any gain realized on the involuntary conversion of MBDC property to PEA is not
recognized as realized income, hence not subject to income tax. The BIR considered
that the Deed of Exchange was executed between MBDC and PEA for the
conveyance of real property in favor of MBDC, in substitution for the parcels of land
involuntarily ceded by MBDC to PEA pursuant to Boulevard 2000 Integrated
Framework Plan. Particularly, the ruling states in part as follows:
"[t]he applicability of the involuntary conversion of property doctrine is

apparent when MBDC was required to cede certain portions of its parcel of
land located in the Boulevard Reclamation Area to PEA pursuant to the
Boulevard 2000 Integrated Framework Plan which was approved by no less
than then President of the Philippines, Fidel V. Ramos. As payment for the
lands required to be ceded by MBDC to PEA, PEA's lands also in the same
area were transferred to MBDC.
xxx xxx xxx
In view of the foregoing, this Office is of the Opinion as it hereby

holds that the gain, if any, on the involuntary conversion of MBDC's property
is not recognized as realized income, hence, not subject to income tax.
(Emphasis supplied)
Likewise, in BIR Ruling No. DA-203-03 dated 30 June 2003, involving the
land swap transaction between Shoemart, Inc. ("SM") and the PEA, the BIR ruled that
the substitution of the parcel of land that SM involuntarily ceded to PEA partakes of
the nature of an involuntary conversion. The exchange of properties between PEA
and Shoemart is not subject to the corporate income tax or to the capital gains tax nor
subject to the credible withholding tax under Revenue Regulations No. 2-98, as
amended. TDcAIH
The surrender of relocation lots by FBDC directly in favor of the affected

residents is necessary to implement the 1997 MOA entered into by all the parties. As
noted, the 1997 MOA is necessary to the implement the KALAYAAN VIADUCT
PROJECT. As a rule, a public works project of the Government could only be
implemented through the expropriation of the affected residential lots as well as the
relocation lots from FBDC. In the instant case, expropriation proceeding is no longer
necessary in view of the 1997 MOA, wherein the affected residents signified their
willingness to convey, surrender and transfer the ownership and possession of their
respective lots to DPWH provided they are replaced by lots of the same size and they
can be compensated for the cost of the improvements existing on their respective lots.
On the side of FBDC, the surrender of relocation site is in considerations of the
improved public road access to its Taguig properties. Indeed, the KALAYAAN
VIADUCT PROJECT can only be implemented by way of involuntary conversion of
properties of the lot owners with that of the FBDC relocation sites.
Accordingly, following the tax implications arising from the application of the
doctrine of involuntary conversion, no taxable gain may be derived by the residents
and by FBDC pursuant to the implementation of the KALAYAAN VIADUCT
PROJECT.
Assuming arguendo that there is no 1997 MOA to speak of, the acts of
disposition by FBDC of relocation lots in favor of all the affected residents and the
latter of their respective lots may be viewed as a mere swapping of properties. In
short, while the surrender was made to DPWH and the ownership of relocation lots
conveyed in exchange thereof belonged to FBDC, the concept of swapping may still
be resorted to in order to implement the intention of the parties to complete the
Viaduct Project. Technically, the arrangement would call first for actual transfer by
FBDC of such relocation lots to DPWH before the latter can exchange the same for
the properties of affected residents. Thereafter, DPWH may swap the relocation lots
with the properties of affected residents to finally implement the project. If this option
has been made, the transfer by FBDC as the transferor-donor would not be subject to
income tax nor to withholding tax. Likewise, the transfer by FBDC to DPWH would
be a donation to the government which is exempt from donor's tax under Sec.
101(A)(2) of the Tax Code of 1997, as amended.
In the case of affected residents, the conveyance of their properties in favor of

DPWH in exchange of relocation lots is not subject to capital gains tax under Sec.
24(D)(1) in relation to par(2) thereof, to wit:
(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 fair
market value as determined in accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon 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 trusts: Provided, That the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations
shall be determined either under Section 24 (A) or under this Subsection, at
the option of the taxpayer.
(2) Exception. — The provisions of paragraph (1) of this Subsection

to the contrary notwithstanding, capital gains presumed to have been realized
from the sale or disposition of their principal residence by natural persons, the
proceeds of which is fully utilized in acquiring or constructing a new principal
residence within eighteen (18) calendar months from the date of sale or
disposition, shall be exempt from the capital gains tax imposed under this
Subsection: Provided, That the historical cost or adjusted basis of the real
property sold or disposed shall be carried over to the new principal residence
built or acquired: Provided, further, That the Commissioner shall have been
duly notified by the taxpayer within thirty (30) days from the date of sale or
disposition through a prescribed return of his intention to avail of the tax
exemption herein mentioned: Provided, still further, That the said tax
exemption can only be availed of once every ten (10) years: Provided, finally,
that if there is no full utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from the sale or
disposition shall be subject to capital gains tax. For this purpose, the gross
selling price or fair market value at the time of sale, whichever is higher, shall
be multiplied by a fraction which the unutilized amount bears to the gross
selling price, in order to determine the taxable portion and the tax prescribed
under paragraph (1) of this Subsection shall be imposed thereon. TESICD
Moreover, any amount received by the affected residents as compensation for

the improvements on their respective lots, and which was paid by FBDC pursuant to
the 1997 MOA (or even without the 1997 MOA) is not also subject to income tax or
capital gains tax imposed under Sections 27(A) and 27(D)(5) of the Tax Code of
1997, as amended.
B. Any gain that may be derived from the transfer of lots by the affected
residents to DPWH is not taxable.
Section 24(D)(1) of the Tax Code of 1997, as amended provides that, "the
provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on
the gross selling price or current fair market value as determined in accordance with
Section 6(E) of this Code, whichever is higher, is hereby imposed upon 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
trusts: Provided, That the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of its political subdivisions or
agencies or to government-owned or controlled corporations shall be determined
either under Section 24 (A) or under this Subsection, at the option of the taxpayer."
Under the foregoing proviso, an individual taxpayer has the option to report his
tax liabilities, if any, gains or dispositions of real property to the government or any
of its political subdivisions or agencies either as a transaction subject to capital gains
tax of 6% under the aforesaid Sec. 24(D) of the Tax Code of 1997, as amended or
under Sec. 24(A)(1) of the same Tax Code.
In BIR Ruling DA-203-03 issued to Shoemart, Inc., supra, and citing BIR
Ruling No. 392-92 dated November 18, 1992 and DA-158-2002 dated September 12,
2002, the doctrine of involuntary conversion was applied. Pertinent factual
consideration was made the basis in applying the doctrine, to wit:
"One of the significant highlights of the JVA dealt on the

"sharing/development options."
"In line with its commitment to comply with the schedule of work in
relation to the development plan, Shoemart (the Developer) timely
commenced and successfully implemented the development works on CBP-1,
Island A under the JVA. In return and in accordance with the terms and
conditions of the JVA, PEA (the Owner) has caused the transfer of the agreed
portion of the developed area equivalent to Six Hundred Four Thousand Three
Hundred Forty Eight (604,348) Square Meters to Shoemart (the Developer)
by way of a Deed of Conveyance in favor of Shoemart. . .
"Notably, under Section 7.2.1 Estimated Power Requirement) of the

Boulevard 2000 Integrated Framework Plan which was prepared in pursuit of
the objectives to implement the development objectives of CBP-1, Island A
Project, two (2) Power Substations were allocated to meet the power
requirement of CBP-1, Island A. Nonetheless however, the Manila Electric
Company (hereinafter "MERALCO"), based on their study on the power
requirement of CBP-1, Island A, recommended the establishment of an
additional two (2) Power Substations in the area. Purportedly in consonance
thereto, under the SM (Shoemart) Master Development plan duly approved by
the PEA Board of Directors on 9 November 1998, the said four (4)
MERALCO Power Substations were proposed to be built in the following
areas, to wit:
a) Open space adjacent to Manila Bay (50 meter green strip) —

two (2) Substations,
b) Open space beside the Libertad Channel — One (1) Substation;
and
c) Pasay Hongkong Realty Dev't. Corp. (PHRDC) property —

One (1) Substation AEIcSa
xxx xxx xxx
"With particular reference to MERALCO Power Substation No. 2, the

same is proposed to be built on PEA's Lot No. 13-A (a common area) in
CBP-1, Island A, (which is covered by Transfer Certificate of Title No.
141665 under the name of PEA) and is located at the intersection of Bay and
Seaside Boulevards, specifically on the west side of Bay Boulevard . . . After
several detailed discussions on the viability of placing the MERALCO Power
Substation No. 2 on the said proposed site however, it became apparent that
normal seawave actions not to mention the seawave conditions during a
stormy weather, will bring about certain technical difficulties or problems to
said MERALCO Power Substation No. 2, due to the proximity of its proposed
location to the seawall along Seaside Boulevard. In simple terms, the presence
of this MERALCO Power Substation No. 2 in the proposed site (PEA's Lot
No. 13-A) carries great technical risks since the said proposed location is
extremely open and exposed to elements coining from actions of the sea. . . .
"To address this concern, PEA interposed the remedy of "land

swapping", which was accepted by Shoemart. In doing so, the parties agreed
that PEA's Lot. No. 13-A (the original proposed site) having an area of Three
Thousand Four Hundred One (3,401) Square Meters, be exchanged with
Shoemart's Lot No. 19 (covered by Transfer Certificate of Title No. 142610
under the name of Shoemart, Inc.). Through this exchange or swap,
Shoemart's Lot 19 (taken from the usable or disposable portion of Shoemart's
land will then be converted as to form part of the common area within PEA's
land and vice versa. Much to the desire of Shoemart to hold on to this (usable
and, disposable) parcel of land, it nevertheless, for the good interest of all
locators in the estate consented to forego of such parcel of land as the (new)
location where the proposed MERALCO Power Substation No. 2 will be
placed. It is believed that the transfer or relocation of the proposed site of
MERALCO Substation No. 2 from PEA's Lot No. 13-A to the aforesaid
Shoemart's Lot No. 19 (which is found across the eastern side of Bay
Boulevard) is the most prudent thing that can be done since the new proposed
location at Shoemart's Lot No. 19 stands protected from the actions of the sea
coming near the Bay Boulevard Bridge as well as the seawall not to mention
that the inland location of Shoemart's Lot 19 as the site for said MERALCO
Power Substation No. 2 will provide easier transmission line accesses as well
as a sheltered location for the power equipments.
"By way of a Deed of Exchange, Shoemart thereby cedes, transfers
and conveys to PEA its land with an area of Three Thousand Four Hundred
One (3,401) Square Meters, identified as Lot 19 and on the other hand, PEA
cedes, transfer and conveys to Shoemart — its land with an equal area of
Three Thousand Four Hundred One (3,401) Square Meters, identified as Lot
13-A, both lands being situated in CBP-1 Island A, Pasay City. . . .
"In reply, please be informed that the execution of the Deed of

Exchange between PEA and Shoemart, conveying real property in favor of
Shoemart, in substitution for the parcels of land involuntarily ceded by
Shoemart to PEA to give way to the construction of MERALCO Power
Station No. 2 partakes the nature of an involuntary conversion. The doctrine
of involuntary conversion of property was relied upon by this Office in BIR
Ruling No. 373-87 dated November 23, 1987 and BIR Ruling No. 429-88
dated September 2, 1988 and reiterated in BIR Ruling No. 329-92 dated
November 18, 1992. The Involuntary Conversion of Property Doctrine, as
explained in BIR Ruling No. 329-92."
Following the doctrine of involuntary conversion as applied in the abovecited

rulings, this Office opines that the surrender of the lots by the affected residents to the
DPWH, is also not subject to capital gains, income, or withholding taxes. The
foregoing doctrine is applicable to the transfer of lots to DPWH by the residents
because the residents were left with no choice except to surrender their lots for the
implementation of the KALAYAAN VIADUCT PROJECT. The residents are
constrained to surrender their lots or portions thereof in lieu of their eventual
expropriation.
Accordingly, any gain that may be derived by the residents as a result of the
transfer of their lots to DPWH for the implementation of KALAYAAN VIADUCT
PROJECT are not taxable under the aforecited Sections 24(A)(1) and (D) of the Tax
Code of 1997, as amended. HcaATE
C. Any gain that may be derived from the transfer of residual lots by the
affected residents to other residents is not subject to capital gains tax or income tax
or withholding tax.
Similarly, the doctrine of involuntary conversion applies to the transfer

residual lots of the affected residents to the other residents. The owners of these
residual lots, which are to be used as replacement lots of other residents, surrendered
such portions of their lots to avoid their eventual expropriation to facilitate the
implementation of the KALAYAAN VIADUCT PROJECT. Such direct conveyance
of residual lots to other residents is the means by which the latter affected residents
are partly or fully compensated for their property that were either surrendered as well
or otherwise affected by the KALAYAAN VIADUCT PROJECT. Consequently, the
gain that may be derived from such transfer is not subject to capital gains tax or
income tax or withholding tax under the provisions of Section 24(A)(1) and (D) of the
Tax Code of 1997, as amended the same being the result of involuntary conversion
(BIR Ruling No. 329-92, dated 18 November 1992; BIR Ruling No. DA-158-2002,
dated 12 September 2002; BIR Ruling No. DA-203-43, dated 30 July 2003).
D. Annotation of Right of Way and subsequent transfer of encumbered lots to

DPWH is not subject to capital gains tax or income tax, the same being the result of
involuntary conversion.
In the case of BIR Ruling No. 329-92, supra, a portion of MJC's real property
was expropriated by the DPWH. At the time of expropriation, its net book portion of
MJC's real property (horse racetrack premises) was expropriated by the DPWH for
public purposes (i.e., road improvement premises). At the time of expropriation, its
net book value is P250,000. Its compensation for the said expropriation is
P29,462.440. However, the said compensation is not even enough to repair, restore,
and rehabilitate its racetrack premises and facilities. On the contrary, MJC's contract
for the partial repair, restoration and rehabilitation of the said premises and facilities
is P53,530,000.
The query is — whether or not the compensation received by MJC in excess of

the net book value of the said expropriated property may legally be recognized as
realized taxable income notwithstanding that, simply because of the said
expropriation MJC's normal business operations was not only disrupted but, in
addition, it would incur a total obligation of more than P53 million just to repair,
restore and rehabilitate its horse racetrack premises and facilities.
The BIR thus ruled that the aforementioned expropriation of MJC's real
property embraced under the involuntary conversion of property doctrine which this
Office relied upon in BIR RULING NO. 373-87, dated November 23, 1987, in the
case of the Mercury Group of Companies.
As earlier discussed, the doctrine of involuntary conversion of property is one

of the several doctrines enunciated by the US Courts that explains the meaning of the
term "income" and "realization of income". As held in the case of Herder vs.
Heldering, supra, "the said gain ($19,199.50) is not a realized income, hence, not
subject to income tax." Applying this doctrine, BIR had ruled that —
"Pursuant to the rule that no realized income may be recognized from a
compulsory or involuntary conversion of a property. . . .
In view of the foregoing, and in the light of your comprehensive

dissertation on the doctrines re the meaning of the term "income" and
"realization of taxable income", this Office hereby confirms your position that
MJC's aforementioned gain from the involuntary conversion of its property is
not recognized as realized income, hence, MJC is not subject to income tax
thereon, pursuant to BIR RULING NO. 373-87 and as reiterated by BIR
RULING NO. 429-88. TcIaHC
Thus, following the same concept this Office hereby opines that the receipt of
compensation by the affected residents whose lots will be encumbered with
annotation of right of way, as well as their eventual transfer to DPWH after securing
permission from DENR pursuant to Presidential Proclamation No. 518, is not subject
to capital gains tax or individual income tax or withholding tax, the same being the
result of an involuntary conversion. In lieu of the standard process of expropriation,
the residents permitted the encumbrance on their lots and allowed them to be used for
public purpose. Such being the case, the resulting gain or income should not be
subject to capital gains tax or income tax or withholding tax on the part of the
residents imposed either under the provisions of Sec. 24(A)(1) or Sec. 24(D) of the
Tax Code of 1997, as amended.
2. Donor's Tax
A. No Donor Tax on donations in favor of the Local Government of Taguig
The intended donation of the access/service roads and easements in favor of

the City of Taguig is exempt from donor's tax under Section 101(A)(2) of the Tax
Code of 1997, as amended. The said provision exempts from donor's tax gifts made to
or for the use of the National Government or any entity created by any of its offices,
which is not conducted for profit, or any political subdivision of the said Government.
In BIR Ruling No. 021-96, this Office had ruled that the donation by Fortune
Tabacco Corporation to the Municipal Government of Marikina was exempted from
donor's tax pursuant to then Sec. 94(a)(2) of the 1977 Tax Code, as amended (now
Sec. 101(A)(2) of the Tax Code of 1997, as amended).
Likewise, in BIR Ruling DA-203-99, the donation of Donavilla to the City of

Las Piñas was held to be exempt from donor's tax pursuant to Sec. 101(A)(2) of the
same Tax Code.
In view of the foregoing bases, this Office hereby rules that the direct donation
of the lots to the City of Taguig properly falls under the abovecited provision of the
Tax Code as a donation to a political subdivision of the National Government, and
thus, exempt from the imposition of donor's tax.
B. No Donor's Tax on the transfer of FBDC relocation lots to the residents
The transfer of FBDC relocation lots to the residents is not subject to donor's
tax. The transfer of the relocation lots is with sufficient consideration and is not a
mere act of liberality. While FBDC is obliged by DPWH to transfer replacement lots
to the residents in lieu of the eventual expropriation of said replacement lots,
nevertheless, FBDC will be benefited by the KALAYAAN VIADUCT PROJECT.
In previous rulings, this Office has clarified, that where a transfer is made with
a business consideration, the same shall not be subject to donor's tax since there is a
clear absence of donative intent on the part of the transferor. In the instant case; this
Office ruled that "GBCI is not subject to income tax on the amount of P38,459,130.00
suspended or waived or condoned by PPMV. Furthermore, the suspension, waiver or
condonation is not subject to donor's tax since there is no donative intent on the part
of PPMV, but was made solely for business consideration to assist GBCI to continue
with its operations. Since the transfer of the replacement lots by FBDC to the affected
residents is without donative intent because FBDC will be benefited by the
construction of the KALAYAAN VIADUCT PROJECT as it would help spur the
development of Bonifacio Global City, the same is not a taxable donation and thus
not subject to donor's tax. The KALAYAAN VIADUCT PROJECT would lead to the
development of Bonifacio Global City as it will provide easier means of access
between Epifanio Delos Santos Avenue (EDSA) and Bonifacio Global City. The
enhancement of Bonifacio Global City, as a result of the implementation of the
KALAYAAN VIADUCT PROJECT, is sufficient business consideration on the part
of FBDC to exempt such transfer from the imposition of donor's tax. In conformity
with the above cited ruling where the BIR clarified that where a transfer is made with
a business consideration, the same shall not be subject to donor's tax imposed under
Sec. 99(B) in relation to Sec. 98, both of the Tax Code of 1997, as amended, since
there is a clear absence of donative intent on the part of the transferor. DCcTHa
C. No Donor's Tax on the monetary compensation given by FBDC to the

residents
The payment of monetary consideration by FBDC to the affected residents is

not subject to donor's tax imposed under Sec. 99(B) in relation to Sec. 98, both of the
Tax Code. Such payment is with sufficient consideration and is not a mere act of
liberality. FBDC will be benefited by the KALAYAAN VIADUCT PROJECT. The
KALAYAAN VIADUCT PROJECT would lead to the development of Bonifacio
Global City as it will provide easier means of access between Epifanio Delos Santos
Avenue (EDSA) and Bonifacio Global City. The enhancement of Bonifacio Global
City, as a result of the implementation of the KALAYAAN VIADUCT PROJECT, is
sufficient business consideration on the part of FBDC to exempt such transfer from
the imposition of donor's tax. This is in conformity with the above cited ruling where
this Office had clarified that where a transfer is made with a business consideration,
the same shall not be subject to donor's tax since there is a clear absence of donative
intent on the part of the transferor.
3. Documentary Stamp Tax
A. DST on FBDC transfer of the replacement lots
The contemplated direct transfer of the FBDC replacement lots to the affected
residents is subject to DST under Section 196 of the Tax Code of 1997, as amended
by RA 9243. As consistently held by this Office, while the exchange of properties
resulting from an involuntary conversion is not subject to the corporate income tax or
to the capital gains tax nor to the creditable withholding tax, the same shall be subject
to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997.
Furthermore, the notarial acknowledgment to the said deed is subject to the
documentary stamp tax of P15.00 pursuant to Section 188 of the same Code. 2 (2)
B. No DST on FBDC donation of lots to the Local Government of Taguig
The contemplated donation of FBDC lots to the City of Taguig is exempt from
documentary stamp tax because the government stands to benefit from such
transaction and there is no valuable consideration received by FBDC.
As consistently held by this Office, donation to a local government is exempt

not only from the imposition of the donor's tax but also from the imposition of DST.
3(3) Under the existing provision of the Tax Code of 1997, as amended, and
rationalizing that because the donation redounds to the benefit of the government and
serves the best interest of the public, donation to the local government is exempt from
DST under Section 196 of the Tax Code. Moreover, since there is no valuable
consideration for the transfer, thus no DST is imposable other than the DST of P15
for each notarial acknowledgement imposed under Section 188 of the Tax Code of
1997, as amended.
C. Documentary Stamp Tax on transfer of lots of the affected residents
To implement the project, portions of lots that will be surrendered by some of

the residents will be partly conveyed to DPWH and the remainder thereof conveyed
to other affected residents as part of the latter's compensation for transferring their
own lots for the implementation of the project. Only one transfer document to
effectuate the transfer to DPWH and to the other residents will be executed, the
consideration for which is the entire amount of property or cash received by the
surrendering resident. Payment of DST is due therefore on the single transfer
document based on the consideration received. Thus, the transfers of lots by the
affected residents, resulting from the implementation of the KALAYAAN VIADUCT
PROJECT, are subject to DST under Section 196 of the Tax Code of 1997, as
amended, as based on the total consideration received for such transfers. EDCTIa
Accordingly, DST shall be imposed on the total consideration received by the

residents which consists of replacement lots either from the FBDC replacement lots or
from residual lots of residents or monetary consideration, or both. For purposes of the
FBDC replacement lots, the DST shall be based on their zonal value of P7,500.00
considering that this is higher than their fair market value per tax declarations. As for
the residual lots of the residents, the DST shall be based on the zonal value or fair
market value of the lots, whichever is higher.
D. Annotation of right of way and eventual transfer of annotated lots
The annotation of the easement of right of way on the lots which are prohibited
from being subdivided is not subject to DST under Section 196 of the Tax Code of
1997, as amended. Although the annotation of the right of way creates a real sight
over the subject lots, the same merely involves its creation and it does not involve its
transfer. This proposed annotation of the perpetual easement of right of way on the
affected lots are preparatory steps to be taken by the parties pending the issuance of
the DENR permit for the subdivision of the lots to implement the actual sale of the
properties.
However, the subsequent transfer of the lots after DENR permission is

obtained shall be subject to DST under Section 196 of the Tax Code of 1991, as
amended. Considering that the perpetual annotation of the right of way is actually
intended as part of the sale between the parties, it shall be subject to DST as imposed
by Sec. 196 of the same Tax Code only after issuance of the DENR permit and
execution of the Deed of Absolute Sale/Transfer in favor of DPWH by the affected
residents.
4. Value-Added Tax
The transfer of lots by FBDC to the DPWH as well as its donation to the City
of Taguig is subject to Value-added Tax (VAT). The transfers of lots by the residents
are, however, not subject to VAT because they are not primarily held for sale or lease
in the ordinary course of business pursuant to Sec. 109(P) of the Tax Code of 1997, as
amended.
A. VAT on transfer of relocation lots by FBDC
Considering that the relocation lots of FBDC were held either for sale or lease
in FBDC's ordinary course of trade or business, the transfer of relocation lots to the
affected residents shall be subject to VAT pursuant to Sec. 105 in relation to Sec. 106,
both of the Tax Code of 1997, as amended. The VAT shall be imposed on the zonal
value or fair market value, which ever is higher, pursuant to Section 106 (A)(1)(a) of
the Tax Code, as implemented by Section 4.106-3 of RR 16-05. Considering that the
zonal value of the FBDC replacement lots of P7,500.00 is higher than their fair
market value per their tax declaration, their zonal value shall be used as basis for
imposition of the 12% VAT.
B. VAT on Donation of Lots to the City of Taguig
The donation of lots to the City of Taguig by FBDC is a completed gift subject
to VAT. Section 4.106-3 of Revenue Regulations (Rev. Regs.) No. 16-05, provides
that a completed gift of property, which is one for sale, lease or use in the ordinary
course of trade or business shall be considered a deemed sale transaction, and thus,
subject to VAT. Pertinent provisions of Rev. Regs. No. 16-05 states as follows:
"Transmission of property to a trustee shall not be subject to VAT if

the property is to be merely held for the trustor and/or beneficiary. However,
if the property is one for sale, lease or use in the ordinary course of trade or
business and the transfer constitutes a completed gift, the transfer is subject to
VAT as a deemed sale transaction pursuant to Sec. 4.106-7 (a)(1) of these
regulations. The transfer is a completed gift if the transferor divests himself
absolutely of control over the property, i.e., irrevocable transfer of corpus
and/or irrevocable designation of beneficiary."
Pursuant to this provision and in correlation to the deemed sale provision under
Section 106 Tax Code of 1997, as amended, the donation by FBDC of its lots to the
City of Taguig is a completed gift that may be treated as a deemed sale transaction.
This is so because the lots to be donated to the City of Taguig are being held by
FBDC either for sale, lease in the ordinary course of its business. Considering the
foregoing, the said donation is subject to the 12% VAT based on their zonal value
P7,500.00 as this is higher than the fair market value per their tax declarations. AcSHCD
C. No VAT on the transfer of lots by the affected residents
However, the foregoing VAT exposure on the transfers by FBDC does not give
rise to a vatable transaction for the residents' transfer of lots to DPWH as well as to
transfers of residual lots to other residents. This is so because the affected residents do
not hold the properties for sale or lease in the ordinary course of trade or business,
unlike the manner by which FBDC held the properties.
In the same BIR Ruling No. 024-05, this Office has also ruled that the transfer
of properties by one corporation to another is not subject to VAT where such
properties are not held for sale or for lease in the ordinary course of trade or business.
Specifically, the BIR ruled:
"In the instant case, the transfer by PSPC of the FIXED Assets of its
LPG business to SGLPI in exchange of the latter's shares of stock pursuant to
a tax-free exchange transaction under Section 40 (C) (2) of the Tax Code of
1997 is by reason a reorganization, a transaction which is not done with
regularity and would no longer be repeated. The assignment of the Fixed
Assets is not undertaken in the course of trade or business or in pursuit of a
commercial or an economic activity, nor is it incidental thereto. The Fixed
Assets are not held by PSPC for sale or for lease in the ordinary course of
trade or business. Furthermore, the Fixed Assets do not constitute PSPC's
stock-in-trade or inventory. Consequently, the assignment of the Fixed Assets
is not subject to VAT."
Based on the foregoing and considering that the residents do not hold the
subject lots for sale or lease in the ordinary course of trade or business, this Office
hereby rules that the transfer of lots by the affected residents are not subject to VAT
pursuant to Sec. 109(P) of the Tax Code of 1997, as amended.
D. No VAT on the subsequent transfer of lots initially annotated with right

of way
The eventual surrender by the residents of the lots initially annotated with the
right of way is not subject to VAT. The transfer of lots from the residents to DPWH
are not made in the course of trade or business nor were the affected lands held by the
resident for sale, lease or use in the ordinary course of trade or business. The transfer
of such lots cannot be considered as a taxable transaction for purposes of imposing
VAT. 4 (4)
5. Replacement Lots Covered by TCRPV Resolution No. 82-2005 valued a

P7,500.00 for expropriation purposes
As noted, the zonal value of the FBDC lots covered by TCRPV Resolution No.
82-2005 is P7,500.00 per square meter. Accordingly, for purposes of transferring the
replacement lots to the affected residents and donating service of access roads to the
City of Taguig, the zonal value of the FBDC lots covered by TCRPV Resolution No.
82-2005 continues to be P7,500.00 per square meter. This is so because the condition
imposed by TCRPV Resolution No. 82-2005, that the zonal value of P7,500.00 per
square meter shall apply for expropriation purposes only, is satisfied by the transfer of
the said lots for the implementation of the KALAYAAN VIADUCT PROJECT.
As earlier intimated, the transfer of the lots by FBDC to the affected residents
and to the City of Taguig arises from its obligation imposed by DPWH under the
1996 and 1997 MOAs for the implementation of the KALAYAAN VIADUCT
PROJECT. FBDC is left with no choice except to provide the relocation lots to the
residents in lieu of their eventual expropriation by the DPWH.
Further, as pointed out, the facts surrounding the implementation of the

KALAYAAN VIADUCT PROJECT constitute the same factual circumstances that
were considered by the Technical Committee on Real Property Valuation (TCRPV) in
resolving the zonal value of the subject properties. The "Bonifacio-Kalayaan Flyover"
as referred to in the TCRPV Resolution, is the same project referred to as
KALAYAAN VIADUCT PROJECT in this instant request for ruling. So also, the
negotiations by FBDC with the affected residents for the acquisition and
expropriation of the affected lots and the replacement of their lots with the Pitogo
Relocation Area referred to in the TCRPV Resolution pertain to the obligations of
FBDC imposed under the 1990 MOA and the 1997 MOA for purposes of
implementing the KALAYAAN VIADUCT PROJECT as referred to in the requested
ruling. HCDAac
This ruling shall serve as sufficient basis for the BIR to issue the Certificates
Authorizing Registration and Tax Clearance Certificates, for all the property transfers
effected in connection with the implementation of the KALAYAAN VIADUCT
PROJECT, including the subsequent transfer of properties initially annotated with the
right of way in favor of DPWH as well as the transfers of properties which are
presently unregistered/untitled and their subsequent registration/titling provided that
FBDC and the concerned parties submit all the necessary Deeds of Exchange
effecting the said transfers to the concerned RDO for evaluation pursuant to the
foregoing.
Finally, this ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it shall be disclosed that the facts are
different, then this ruling shall be considered null and void.
Very truly yours,
(SGD.) JOSE MARIO C. BUÑAG

Commissioner
Bureau of Internal Revenue
Footnotes
1. BIR Ruling No. 329-92 dated November 18, 1992; BIR Ruling Nos. 373-87 dated
Nov. 23, 1987 & 429-88 dated September 2, 1988; DA-158-2002 dated September
12, 2002; DA-203-03 dated June 30, 2003.
2. BIR Ruling DA 203-03, dated 30 June 2003
3. BIR Ruling No. DA-135-01, dated 8 August 2001.
4. BIR Ruling No. 024-05, dated 23 December 2005
Endnotes
1 (Popup - Popup)
1. BIR Ruling No. 329-92 dated November 18, 1992; BIR Ruling Nos. 373-87 dated
Nov. 23, 1987 & 429-88 dated September 2, 1988; DA-158-2002 dated September
12, 2002; DA-203-03 dated June 30, 2003.
2 (Popup - Popup)
2. BIR Ruling DA 203-03, dated 30 June 2003
3 (Popup - Popup)
3. BIR Ruling No. DA-135-01, dated 8 August 2001.
4 (Popup - Popup)
4. BIR Ruling No. 024-05, dated 23 December 2005

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September 22, 2006

BIR RULING [DA-576-06]

RR 16-05; BIR Ruling Nos. 329-92; DA-158-02;

Laya Mananghaya & Co.

Attention: Francisco G. Tagao

The KALAYAAN VIADUCT PROJECT is a public works project to improve

On October 28, 1996, a Memorandum of Agreement (hereinafter referred to as

Sometime in May 1997, the residents affected by the KALAYAAN VIADUCT

For purposes of complying with its obligation of providing replacement lots to

Consequent to the foregoing agreements, forty-two (42) affected residents are

A confirmation is now sought on the following:

I. No Income or Capital Gains tax or Final or Creditable Withholding Tax

A. Transfer of FBDC Relocation Site Lots to DPWH

Following the doctrine of involuntary conversion, the transfer of FBDC

The doctrine of involuntary conversion states that if property, as a result of its

"Gains from the involuntary conversion of a property is not subject to

B. Transfer of the affected lots by the residents to the DPWH

C. Transfer of portions of the residual lots to other affected residents

II. Donor's Tax

A. No Donor's tax on the Donation of Lots to the City of Taguig

B. No Donor's Tax on the Transfer of FBDC Relocation Lots to the

C. No Donor's Tax on the Monetary Consideration Given by FBDC to the

The payment by FBDC of monetary consideration to the residents is not a

III. Documentary Stamp Tax

A. Transfer of FBDC Relocation Lots to Affected Residents

B. Documentary Stamp Tax on Transfer of Lots of the Affected Residents

IV. Value-Added Tax

A. VAT on Transfer of Relocation Lots by FBDC

B. VAT on Donation of Lots to the City of Taguig

C. No VAT on the Transfer of Lots by the Affected Residents

D. No VAT on the Transfer of Replacement Lots to Other Residents

V. Zonal Value of Lots Covered by TCRPV Resolution No. 82-05 remains at

1. Income Tax/Capital Gains Tax

Section 27(A) of the Tax Code of 1997, as amended by RA 9337 reads as

"(A) In General. — Except as otherwise provided in this Code, an

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For purposes of determining whether income received is subject to the 35%

"a. Taxpayers engaged in the real estate business. — Real property

1. Real Estate Dealer. — All real properties acquired by the real

xxx xxx xxx

4. Taxpayers habitually engaged in the real estate business. — All

In short, sale or disposition of real property classified as ordinary assets shall

The Doctrine of Involuntary Conversion

"Involuntary Conversion — if property (as a result of its destruction,

This doctrine is one of the several doctrines enunciated by US Courts to

Although under the foregoing Herder case the involuntary conversion of

A. Transfer of FBDC relocation lots to affected residents is not subject to

The construction of vital roads and other infrastructures/facilities of the

In BIR Ruling No. DA-158-2002 dated 12 September 2002, Manila Bay

"[t]he applicability of the involuntary conversion of property doctrine is

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In view of the foregoing, this Office is of the Opinion as it hereby

The surrender of relocation lots by FBDC directly in favor of the affected

In the case of affected residents, the conveyance of their properties in favor of

(D) Capital Gains from Sale of Real Property. —

(1) In General. — The provisions of Section 39(B) notwithstanding,

(2) Exception. — The provisions of paragraph (1) of this Subsection

Moreover, any amount received by the affected residents as compensation for

"One of the significant highlights of the JVA dealt on the

"Notably, under Section 7.2.1 Estimated Power Requirement) of the

a) Open space adjacent to Manila Bay (50 meter green strip) —

b) Open space beside the Libertad Channel — One (1) Substation;

c) Pasay Hongkong Realty Dev't. Corp. (PHRDC) property —