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November 28, 2001 REVENUE MEMORANDUM ORDER NO. 32-01 SUBJECT : Guidelines Implementing Revenue Regulations No. 18-2001 on the Monitoring of the Basis of the Property Transferred and Shares of Stock Received Pursuant to Section 40(C)(2) of the Tax Code of 1997, Revising and Updating the Requirements and Conditions Precedent to the Non-Recognition of Gain or Loss in Transactions Falling Thereunder, and Prescribing the Forms Therefor. TO
All Internal Revenue Officers and Others Concerned.
In order to facilitate the monitoring of the basis of properties transferred and shares received in an exchange transaction, and in the determination of whether a transaction involving the transfer of properties by individual/s or corporation/s in exchange for shares of stock of another corporation or unit of participation in a partnership, as well as a transaction involving a merger or consolidation, is a taxfree exchange that falls under Section 40(C)(2), in relation to Section 40(6)(b) and (c) of the Tax Code of 1997, the requirements hereunder stated must be complied with by both .transferor(s)/absorbed corporation and transferee/surviving/consolidated corporation. HSacEI The procedures outlined hereunder implement and complement Revenue Regulations No. 18-2001 dated November 13, 2001, and shall be observed in the monitoring and investigation of the basis of such properties transferred pursuant to a tax-free exchange, to ascertain compliance with the conditions set forth in the Certification/Ruling issued by this Office, and in the consequent assessment of tax liabilities if any, due upon subsequent disposition of the properties involved in the exchange. I.
BIR Certification/Ruling —
Any application to be filed with the Law Division for a BIR Certification/Ruling on the tax consequence of the exchange of properties described hereunder shall be made in a form which the BIR will provide for the purpose under the cover of a transmittal letter providing a brief overview of the transaction that contains all the material facts of the exchange transaction, and shall be accompanied by three (3) copies of each of the following documents: (1) —
In the case of transfer of property to a controlled corporation/partnership
Deed of Transfer/Assignment/Exchange;
(b) Duly registered Articles of Incorporation or Partnership with SEC of the transferor corporation and transferee corporation/partnership, and By-Laws;
(c) Copies of the Transfer Certificates of Title/Condominium Certificates of Title/Certificates of Stock to the properties to be transferred pursuant to the taxfree exchange, as certified by the appropriate Registrar of Deeds or Corporate Secretary, as the case may be; (d) Copies of the latest Tax Declaration of the properties to be transferred pursuant to the tax-free exchange, as certified by the appropriate local government unit's Assessor. It is understood that any improvement is separately declared and therefore, covered by a Tax Declaration distinct from the Tax Declaration on the land. Further, if the tax declaration was issued three (3) or more years prior to the exchange transaction, the Transferor shall include in the certification by the local government unit's Assessor that such declaration is the latest tax declaration covering the real property; (e) Certification of the fair market value or zonal value of the real property involved in the exchange. The zonal value shall be certified, as a general rule, by the Chief, Asset Valuation Division at the 10th Floor, BIR National Office. However, the Revenue District Officer or the Revenue Regional Director can also issue the certification whenever access to the latest schedule of zonal values is electronically available to them. (f) Sworn certification by the individual transferor or in the case of a juridical person, by the Chief Financial Officer or his equivalent as to the basis of the property to be transferred. The original or adjusted basis, as the case may be, of each real property/share of stock/or other property transferred must be itemized in the certification, instead of a single lump sum in order to enable the Registrar of Deeds or the corporate secretary, as the case may be, to annotate the substituted basis on the reverse side of the Transfer/Condominium Certificate of Title to the real property involved or of the Certificate of Stock, and in order to facilitate the determination of gain or loss from a subsequent disposition of real properties/shares of stock and other properties received in the exchange. (g) Sworn statement of the amount and nature of any liabilities assumed upon the exchange, and the amount and nature of any liabilities to which any of the properties acquired in the exchange is subject. The proper officer to issue the statement shall be the Chief Financial Officer or his equivalent and confirmed by the President or the Chief Executive Officer or Country Chairman or their equivalent; (h) Audited Financial Statements of Transferor-corporation, as of the transaction date. (2)
In the case of Merger or Consolidation —
The documents stated in (1) above;
Plan of Corporate Merger or Consolidation;
(c) Statement of the amount and nature of the assets to be transferred by the absorbed corporation to the surviving/consolidated corporation.
(d) Articles of Incorporation duly registered with SEC of the merged or consolidated corporation; and (e) Audited Financial Statements duly submitted or to be submitted to the SEC in connection with the application for merger or consolidation. The material facts in the submitted documents, including an analysis of their bearing on the issues and a specification of the applicable provisions thereof, must be stated also in the covering letter. B. No Application/Request for Certification-Ruling will be processed unless the foregoing requirements are complied with in all respects. C. In the case of executed and/or completed transactions, either original executed and notarized copies or certified true copies of the above-mentioned documents must be submitted, together with proof of payment of the applicable documentary stamp taxes on the transactions. In the case of issuance of shares/unit of participation by the transferee, the due dates for the payment of the corresponding documentary stamp tax prescribed under Revenue Memorandum Order No. 8-98 dated February 10, 1998, as amended by Revenue Regulations No. 6-2001 and 12-2001 dated July 31, 2001 and September 7, 2001, respectively, shall apply. D.
Records to be kept and information to be filed. —
The parties to the transaction shall comply with the pertinent provisions of Revenue Regulations No. 18-2001 dated November 13, 2001, regarding the records to be kept and information to be filed in connection with the tax-free exchange, provided that, any violation thereof, including the failure of the parties to present proof of annotation of the substituted basis within the period provided in Section 7 of such Regulations shall be referred to the Prosecution Division for appropriate action. DSHcTC II.
FORM OF REQUEST FOR RULING AND CERTIFICATION
To the extent applicable, the request for certification-ruling shall be prepared and submitted in the form provided in Annex "A" hereof under the heading "Application and Joint Certification". For this purpose, soft copies of the Form shall be available either from the Taxpayers' Information and Education Division at the Ground Floor, BIR National Office Building or from the Law Division at the 7th Floor of the same building. The same may also be downloaded from the BIR website at www.bir.gov.ph. If the application is to be signed and submitted not by the taxpayer himself, but only by his authorized representative, the appropriate special power of attorney shall be submitted with the application for a certification-ruling. Otherwise, the request shall not be accepted by the BIR. In the case of a juridical person, the corporate secretary shall issue a sworn statement that the signing officer (i.e., at the very least, the Chief Financial Officer) has been authorized by the Board of
Directors to represent the company and has personal knowledge of the facts of the exchange transaction. III.
PROCESSING AND CERTIFICATION FEE
The taxpayer/applicant shall pay the applicable processing and certification fee as provided in Revenue Regulations No. 18-2001 dated November 13, 2001, before filing of the request for certification-ruling. The applicant must submit proof of payment of the processing and certification fee, with the original presented, upon filing of the application for certification-ruling with the Law Division. Otherwise, the application shall not be accepted for processing. The processing and certification fee shall accordingly be adjusted if additional transfer certificates of title/condominium certificates of title/certificates of stock are submitted for processing. IV.
DECLARATION UNDER OATH
Declarations in the application and joint certification form, the documents to be submitted, and the facts represented in support of the requested certificationruling, 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. V. ISSUANCE OF CERTIFICATE AUTHORIZING REGISTRATION (CAR)/TAX CLEARANCE (TCL) The CAR/TCL for the real property or share of stock/unit of participation/interest involved in the exchange shall be issued by the Revenue District Officer (RDO) or by the Authorized Internal Revenue Officer (AIRO), on the basis of the certification-ruling issued by the Commissioner or his duly authorized representative to the effect that the transaction qualifies as a tax-free exchange or corporate reorganization under Section 40(C)(2) of the Tax Code of 1997. The necessary proof of payment of appropriate documentary stamp taxes must also be presented. The CAR/TCL to be issued shall specify, among others, that the transaction involved is a tax-free exchange under Section 40(C)(2) of the Tax Code of 1997; the date of exchange; the original or adjusted basis as represented by the taxpayer, and substituted basis of the properties as stated in the certification or ruling issued by the Bureau of Internal Revenue. VI.
REPEALING CLAUSE. —
The provisions of Revenue Memorandum Order No. 26-92 dated May 28, 1992, and all other rules, orders or portions thereof that are contrary to or inconsistent
with the provisions of this Order are hereby modified and/or repealed accordingly. VII.
This Order shall take effect immediately. (SGD.) RENE G. BAÑEZ Commissioner of Internal Revenue