BIR amends issuance of Certificates Authorizing Registration regarding the tax-free exchange of properties stated in the Tax Code

The BIR clarifies the amendments on the transaction covering tax-free exchanges of properties under section 40 (C)(2) of the National Internal Revenue Tax Code of 1997. These changes were announced through their Revenue Memorandum Circular (RMC) No. 65-2023 – which was released on June 9, 2023.

This RMC was created to circularize Item VIII of another previous BIR announcement, RMC No. 19-2022 – which was introduced to maintain compliance with the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 or Section 5 of Republic Act No. 11032.

Before being amended, Item VIII from BIR RMC No. 19-2022 regarding “Venue for the issuance of Certificate Authorizing Registration (CAR)” stated that:

“For purposes of the issuance of the CAR for the transferred properties pursuant to the tax-free reorganization/exchange, the parties to the transaction shall submit the documentary requirements listed in Annex “B” hereof to the RDO having jurisdiction over the place where the property is located, in case of a real property or in case of shares of stock, the RDO where the issuing corporation is registered.

In case the transaction involves the transfer of multiple real properties and/or shares of stocks situated in various locations covered by different RDOs, the CAR shall be processed with the 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 of 1997, as amended by CREATE, the date of the transaction, and the substituted basis of the properties subject therefor.”

The amendments finalised by RMC No. 65-2023 reads as:

“VIII. VENUE FOR THE ISSUANCE OF THE CERTIFICATE AUTHORIZING REGISTRATION:

For purposes of the issuance of the CAR for the transferred properties pursuant to the Tax-Free reorganization/exchange, the parties to the transaction shall, in all cases, submit the documentary requirements listed in Annex “B” hereof to the Revenue District Office (RDO)/Large Taxpayers (LT) Office having jurisdiction over the place where the Transferee/Surviving Corporation is registered regardless of the number of real properties and/or shares of stocks involved in a transaction, and whether or not, those properties are situated in various locations covered by different RDOs/LT offices.”

The RMC states that all types of applications for the issuance of CAR documents that are related to the tax-free exchanges of properties of Section 40(C)(2) of the National Internal Revenue Tax Code shall now be filed to a Revenue District Office (RDO) or Large Taxpayers (LT) Offices that have jurisdiction in the location where the corporation or transferee is currently registered at.

Taxpayers will have to file in these locations regardless of the number of properties the corporation/transferee owned and the number of stocks they had during transactions. Additionally, the new rule still applies even if the properties are in areas handled by different RDO/LT Offices.