Documentation Requirements
- For BIR adjudication or ruling requests, specific documents must be submitted depending on transaction type:
- Merger or Consolidation:
- Plan of Corporate Merger or Consolidation
- Statement of liabilities assumed and encumbrances on property
- SEC-registered Articles of Incorporation for merging entities
- Other relevant documents
- Transfer to Controlled Corporation:
- Deed of Transfer/Assignment/Exchange
- SEC-registered Articles of Incorporation of both entities
- Transfer Certificate of Titles and Tax Declarations
- Certifications of original cost, fair market value, authorized capitalization, ownership percentages
- Other pertinent documents
- Merger or Consolidation:
Records to be Kept and Information to be Filed
- Merger or Consolidation:
- Adoption of reorganization plan by responsible officers recorded officially.
- Filing with tax return of:
- Copy of plan and detailed statements of transactions under penalty of perjury
- Cost basis details of transferred property and securities
- Description of stocks, securities, property or money received with fair market values
- Liabilities assumed or attaching to acquired property
- Non-corporate taxpayers involved must submit similar detailed statements in tax returns.
- Permanent records showing cost basis and transaction details must be maintained.
- Merged or consolidated corporations are subject to investigation; proof of such BIR investigations must be submitted.
- Transfer to Controlled Corporation:
- Transferor to file with income tax return:
- Sworn statement of how property was acquired
- Description of properties and cost bases
- Details of stock shares received, including fair market values
- Transferee to file with income tax return:
- Description and basis of properties acquired
- Capital stock details before and after exchange
- Both parties must keep permanent records for future gain/loss determination.
- Annotations must be made on titles or stock certificates reflecting the exchange date, acquisition cost, and tax-free exchange status.
- Transferor to file with income tax return:
Conditions for Issuance of Certificate Authorizing Registration (CAR)
- CAR for real property involved in exchange only issued upon Commissioner’s ruling that the transaction qualifies as tax-free under Section 34(c)(2).
- CAR must specify transaction as tax-free exchange, date of exchange, and verified original cost basis.
- Documentary stamp tax imposed based on stock value received or shares issued.
Registration of Properties
- Register of Deeds requires presentation of CAR to transfer titles to transferee corporation.
- Annotation on Transfer Certificate of Title that exchange is tax-free, with acquisition cost and deed date.
- Corporate Secretary records share ownership corresponding to properties transferred.
- Documentary stamp tax on original issues of new shares must be paid.
Monitoring and Investigation of Tax-Free Exchanges
- Legislative, Ruling, and Research Division forwards rulings to relevant Revenue District Officers for compliance verification.
- Since Section 34(c)(2) provides deferral of gain recognition, subsequent disposition of properties triggers tax liability.
- Income and documentary stamp taxes on subsequent sales computed based on difference between original/adjusted cost and sale consideration or fair market value, whichever is higher.
- Cost basis of newly received shares is same as original/adjusted cost basis of properties exchanged.
Repealing Clause
- All existing regulations or orders contrary or inconsistent with these provisions are modified or repealed.
Effectivity
- The order takes immediate effect upon adoption on 28 May 1992.