Question & AnswerQ&A (BIR REVENUE MEMORANDUM ORDER NO. 26-92)
Documents required include the Plan of Corporate Merger or Consolidation, a statement of liabilities assumed, Articles of Incorporation of the merging or consolidating corporations registered with the SEC, and other pertinent documents.
Required documents include the deed of transfer/assignment/exchange, SEC-registered Articles of Incorporation of both corporations, Transfer Certificates of Titles, Tax Declaration, certifications regarding the historical cost and fair market value of properties, corporate secretary's certification on authorized capitalization and par value of shares, percentage ownership certification, and other pertinent documents.
Corporations must file a complete statement of all pertinent facts including a copy of the plan of reorganization with a detailed statement of its purposes and related transactions; a statement of the cost or other basis of all transferred property; a statement of stock or property received at fair market value; and a statement of liabilities assumed or imposed on property received.
They must include a complete statement of pertinent facts showing the cost or basis of stock transferred, the amount and value of stock or other property received (including liabilities assumed), with values based on fair market value at the exchange date.
Taxpayers must keep permanent records showing the original or adjusted cost basis of transferred properties or received stocks, and any liabilities assumed, to facilitate determination of gain or loss from subsequent dispositions.
No CAR for real property shall be issued unless the BIR Commissioner issues a ruling that the transaction qualifies as a tax-free exchange under Section 34(c)(2). The CAR specifies details of the transaction including the original cost and the date of exchange.
DST under Section 196 is based on the consideration received such as the value of shares issued in exchange for real property, while original issues of Certificates of Stocks by the transferee corporation are subject to DST under Section 175.
The Register of Deeds shall register the Transfer Certificate of Title in the transferee's name only upon presentation of the CAR. The TCT must indicate that the transfer is a tax-free exchange under Section 34(c)(2), show the original cost basis of the property, and the date of the deed.
The Legislative, Ruling and Research Division refers copies of adjudication letters/rulings to Revenue District Officers for verification and monitoring. Subsequent disposition of properties is monitored to assess tax liabilities based on original or adjusted cost bases and fair market values.
Any gain or loss upon subsequent disposition is recognized and subject to income tax. Tax is computed based on the difference between the original or adjusted cost basis and the higher of the sale consideration or fair market value.
Annotations must include the date of exchange, original or historical acquisition cost of properties or shares, and a note that no gain or loss was recognized due to the tax-free exchange under Section 34(c)(2).
The Order took effect immediately upon its adoption on May 28, 1992.
All rules, orders, or regulations contrary or inconsistent with this Order are modified and/or repealed accordingly.