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TAX-FREE EXCHANGES OF PROPERTIES PURSUANT TO SECTION 40(C)(2) OF THE NIRC OF 1997

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 follow-up 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.

CHECKLIST OF REQUIRED DOCUMENTS (click here (/images/bir_files/law_and_legislative/kit_checklist_sec40c2.docx))

Tax Forms.

BIR Form No. 1927 (/index.php/bir-forms/legal-forms.html) - Application and Joint Certification

BIR Form 0605 (/index.php/bir-forms/payment-remittance-forms.html#prf0605) - Payment Form
BIR Form 2000 (/index.php/bir-forms/documentary-stamp-tax-return.html#dstr2000) - Documentary Stamp Tax Declaration

Related Revenue and Other Issuances.

Revenue Regulations (RR) No. 18-2001 (/images/bir_files/law_and_legislative/RR_18-01.pdf) (Guidelines on the Monitoring of the Basis of
Property Transferred and Shares Received, Prescribing Penalties for Failure to Comply with such Guidelines, and Authorizing the Imposition
of Fees for the Monitoring Thereof)

Revenue Memorandum Rulings (RMR) 1-2001 (/images/bir_files/law_and_legislative/RMR_01-01.pdf)  (Tax Consequences of Tax-free

Exchange of Property for Shares of Stock of a Controlled Corporation)

Revenue Memorandum Order (RMO) No.  32-2001 (/images/bir_files/law_and_legislative/RMO_32-01.pdf)  (Guidelines Implementing RR

18-2001 on the Monitoring of the Basis of the Property Transferred & Shares of Stock Received Pursuant to Section 40(C)(2) of the Tax
Code of 1997, Revising & Updating the Requirements & Conditions Precedent to the Non-Recognition of Gain or Loss in Transactions
Falling Thereunder, & Prescribing the Forms Therefor)

Revenue Memorandum Rulings (RMR) 02-02 (/images/bir_files/law_and_legislative/RMR_02-02.pdf)  (Determination of Substituted Basis

of Property Transferred and Shares Received, Pursuant to Section 40(C)(5) of the National Internal Revenue Code of 1997)

Revenue Regulations (RR) No. 010-11 (/images/bir_files/law_and_legislative/RR_10-11.pdf)  (Amending Certain Provisions of Revenue
Regulations No. 16-2005 as Amended by Revenue Regulations No. 4-2007, otherwise known as the Consolidated Value-added Tax
Regulations of 2005, as Amended)

Revenue Memorandum Order (RMO) No. 09-2014 (/images/bir_files/law_and_legislative/RMO_9-2014.pdf) (Requests for Rulings with the
Law and Legislative Division) provides the guidelines in the processing of requests for rulings with the Law and Legislative Division.

Tax Reminders

January 16
Tuesday

Consolidated Return of All Transactions based on the Reconciled Data of Stockbrokers

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