TAX-FREE EXCHANGES OF PROPERTIES

SECTION 40(C)(2) OF THE NIRC OF 1997

PURSUANT

TO

Tax-free exchanges refer to those instances enumerated in Section

40(C)(2) of the National Internal Revenue Code (NIRC) of 1997 that
are not subject to Income Tax, Capital Gains Tax, Documentary
Stamp Tax and/or Value-added Tax, as the case may be.
In general, there are two kinds of tax-free exchange: (1) transfer to
a controlled corporation; and, (2) merger or consolidation.
In the first instance, no gain or loss shall be recognized if property is
transferred to a corporation by a person in exchange for stock or
unit of participation in such corporation of which as a result of such
exchange said person, alone or together with others, not exceeding
four persons, gains control of said corporation.
In the second instance, no gain or loss shall be recognized if in
pursuance of a plan of merger or consolidation --- (a) a corporation,
which is a party to a merger or consolidation, exchanges property
solely for stock in a corporation, which is a party to the merger or
consolidation; or, (b) a shareholder exchanges stock in a
corporation, which is a party to the merger or consolidation, solely
for the stock of another corporation also a party to the merger or
consolidation; or, (c) a security holder of a corporation, which is a
party to the merger or consolidation, exchanges his securities in
such corporation, solely for stock or securities in another
corporation, a party to the merger or consolidation.
Legal Reference.
Section 40(C)(2) to 40(C)(6) of the NIRC of 1997.
Procedures and Compliance Requirements.
The request for a BIR Certification/Ruling on the tax consequences
of the exchange of properties shall be filed with the Legal and
Legislative Division, Rm. 709, 7th Floor, BIR National Office, and the
payment of a certification fee at the rate P5,000.00 for each
application not involving more than 10 real properties and/or
certificates of stock shall be made. An additional fee of P100.00
shall be paid for every transfer certificate of title/condominium
certificate of title/certificate of stock in excess of ten (10).
Any application to be filed with the Legal and Legislative Division for

a BIR Certification/Ruling shall be made in BIR Form No. 1927 under

the cover of a transmittal letter providing a brief overview of the
transaction that contains all the material facts of the exchange
transaction, including an analysis of their bearing on the issues and
a specification of the applicable provisions thereof, and two (2)
copies each of the documents required to be attached thereto. The
first set of documents must be duly certified as true copy by the
appropriate government agency having custody of the original
thereof.
Declarations in the application and joint certificate form, BIR Form
No. 1927, the documents to be submitted and the Forms to be
submitted, and the facts represented in support of the requested
ruling, including the covering letter, shall be sworn under oath,
under penalties of perjury, by the taxpayer himself; or, in the case
of a juridical person, by the Chief Financial Officer or his equivalent
who has personal knowledge of the facts to be true, correct and
complete. Actual submission of the application/request and followup thereof may be done by an authorized representative, clothed
with a special power of attorney, and subject to the provisions of
Revenue Regulations No. 15-99 dated July 16, 1999 on accreditation
of tax agents.
Also, the application for the issuance of a BIR Certification/Ruling
must comply with the guidelines set forth under Revenue
Memorandum Order (RMO) No. 9-2014.
http://www.bir.gov.ph/index.php/rulings-and-legal-matters/tax-freeexchanges.html