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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.
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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)

Tax Forms.

BIR Form No. 1927 - Application and Joint Certification

BIR Form 0605 - Payment Form
BIR Form 2000 - Documentary Stamp Tax Declaration