Special InTAX: February 2022 Issue 1 | Volume 2

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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special intax

Bureau of Internal Revenue


The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 19-2022, 04 February 2022, to provide clarification and guidance on Section 8 of Revenue Regulations (RR) No. 5-2021 on the tax-free exchanges of properties under Section 40(C)(2) of the Tax Code, as amended by Republic Act (RA) No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).


Under Section 40(C)(2) of the 1997 Tax Code, as amended by CREATE, tax -free exchanges of properties include reorganization and transfer of property to a controlled corporation. These terms are defined in the issuance.  Further, the term “Control” shall mean ownership of stocks in a corporation after the transfer of property possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote. The collective and not the individual ownership of all classes of stocks entitled to vote of the transferor or transferors shall be used in determining the presence of control.

Determination of Substituted Basis

Rules on determining the substituted basis for Stock and Securities and Property in the Hands of the Transferee are also provided in the RMC.

Basis for Determining Gain or Loss on the Subsequent Sale or Disposition of Properties

The substituted basis, as determined through the procedures listed in the RMC’s Item III, shall be the basis for determining gain or loss on a subsequent sale or disposition of properties subject of the tax-free exchange transactions under Section 40(C)(2) of the Tax Code, as amended.

Monitoring of the Substituted Basis of Properties

For proper monitoring of the substituted basis of properties, the parties to the tax-free exchange/reorganization should comply with the following requirements as set forth under RR No. 18-2001 such as:

A.  The filing, as part of its final adjustment or annual income tax return for the taxable year within which the reorganization occurred, (by parties to a reorganization and other taxpayers who received property pursuant to a reorganization) of a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization.

B.   Inclusion of a note to parties’ respective Audited Financial Statements (AFS) for the taxable year in which the exchange occurred a statement to the effect that they hold such assets/shares acquired in a tax-free exchange and the year in which such exchange occurred, and in the taxable years until the subject properties are subsequently transferred to another transferee.

C.  Annotate, at the back of the Transfer Certificate of Title (TCC), Condominium Certificate of Title (CCT) and Certificates of Stock, the date the deed of exchange was executed, the original or historical cost of acquisition of the properties or shares of stock transferred, and the fact that no gain or loss was recognized as a result of such exchange.

D.  Submission of a photocopy of the TCT/CCT/Certificate of Stock that bears the annotation of substituted bases of the real properties/shares of stock transferred/received in connection with the transaction, as duly certified by the RD/Corporate Secretary, should be submitted to the RDO which issued the Certificate Authorizing Registration (CAR), within ninety (90) days from the date of the receipt of the CAR, by any of the parties to the exchange transaction.

E.  Recording of mandatory entries by the shareholders of the absorbed/transferor corporation and the surviving/transferee corporation shall record in their respective books the mandatory accounting entries per Annexes "A”, “A-1” and “A-2” of this RMC.

Tax Treatment

The transfers of properties in exchange for shares of stocks made pursuant to Section 40(C)(2) of the Tax Code, as amended, shall be exempt from Capital Gains Tax (CGT); Creditable Withholding Tax (CWT); Income Tax (IT); Donor's Tax (DT); Value-Added Tax (VAT); and Documentary Stamp Tax (DST) on conveyances of real properties and shares of stocks. However, the original issuance of shares in exchange for the properties transferred shall be subject to the DST.

Relevant existing revenue issuances shall continue to be applicable on exchanges of properties made pursuant to Section 40(C)(2) of the Tax Code, as amended by CREATE, particularly on the establishment, and monitoring of substituted basis of the properties transferred and stocks received in case of their subsequent  sale or disposals, including their tax treatment.

The RMC likewise provides for the documentary requirements for the application for and issuance of the CAR for the transfer of properties pursuant to Section 40(C)(2), as amended.  Annex B of the RMC provides the complete checklist of the mandatory requirements.

Venue for the Issuance of the CAR for the Transferred Properties on a Tax-Free Reorganization/Exchange

Asset Type

Venue for CAR Issuance

Real Property

RDO where real property is located

Shares of Stock

RDO where the issuing corporation is registered

Multiple real properties and/or shares of stocks situated in various locations covered by different RDOs

RDO having jurisdiction over the place where the transferee corporation is registered


The CAR should specify, among others, that the transaction involved is a tax-free exchange under Section 40(C)(2) of the Tax Code, as amended, the date of transaction, and the substituted basis of the properties subject therefor.

Conduct of Post-Transaction Audit

  •  Following the issuance of a CAR, the concerned RDO shall conduct a post-audit of said transactions under Section 40(C)(2) and.
  •  If after audit, the transaction is found to be not entitled to the tax deferment treatment under Section 40(C)(2) of the Tax Code, as amended, the transaction shall be subject to the applicable taxes, plus interest, penalty, and surcharge. However, the result of the audit shall not invalidate the CAR previously issued for the transfer of the properties.

Option to Request for Legal Opinion/Ruling to Clarify Legal Issues

  •  The taxpayer is not precluded from requesting a legal opinion/ruling with the Law and Legislative Division (LLD) of the BIR to clarify legal issues that may affect the transactions made pursuant to Section 40(C)(2) of the Tax Code, as amended, including the taxability of such transaction.
  • The LLD shall evaluate whether the request involves questions of law that would merit the issuance of a ruling. Otherwise, it shall endorse the request to the concerned RDO for appropriate action.

The RMC shall take effect immediately.


Attached are the full texts of the issuances.

Revenue Memorandum Circular No. 19-2022

Revenue Memorandum Circular No. 19-2022 Annex  A

Revenue Memorandum Circular No. 19-2022 Annex  A-1

Revenue Memorandum Circular No. 19-2022 Annex  A-2

Revenue Memorandum Circular No. 19-2022 Annex  B


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