THE Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (“RMC”) No. 37-2012 clarifying Section 11 of Revenue Regulations No. 06-08 or the “Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter, Exchange, or Other Disposition of Shares of Stock Held as Capital Assets.”
Revenue Memorandum Order (RMO) No. 15-03 dated May 8, 2003 prescribes the policies, guidelines, and procedures, including the documentary requirements, in the issuance of Certificates Authorizing Registration (CARs) for transactions subject to capital gains tax on the sale, barter, transfer, or assignment of shares of stock not traded in the Stock Exchange. Accordingly, a CAR is necessary before any transfer of shares in the books of the corporation.
The receipts of payment of the tax should also be filed with and recorded by the secretary of the corporation pursuant to Section 11 of Revenue Regulation No. 06-08.
On Prescription of Tax-Free Rulings
The BIR also issued RMC No. 40-2012 prescribing a period of prescription for rulings under Section 40(C)(2) of the Tax Code.
Tax-free exchange rulings issued under Section 40(C)(2) of the Tax Code shall be valid only for 90 days counted from the date of receipt of the ruling by any of the parties to the exchange transaction. The properties and shares of stocks involved in the transfer should be conveyed to the transferee/s and transferor/s, respectively, within this period. Pursuant to Revenue Regulation No. 18-2001 and Revenue Memorandum Order No. 32-01, a photocopy of the Transfer Certificate of Title (TCT)/Condominium Certificate of Title (CCT)/Share of Stock that bears the annotation of substituted basis of the real property/shares of stock transferred/received in connection with the transaction as duly certified by the Register of Deeds/Corporate Secretary should be submitted to the Law Division, Bureau of Internal Revenue, also within the 90 days from the date of the receipt of the ruling or certification, by any of the parties to the exchange transaction.
Otherwise, the ruling shall be void and without effect and the Chief, Law Division shall refer the docket of the case to the Prosecution Division for appropriate action.
The imposition of the prescriptive period, in the opinion of the author, has no proper legal basis. In fact, it would take a taxpayer basically years to successfully secure a tax-free exchange ruling, if indeed he could secure one. The imposition of the prescriptive period it seems does not take into consideration the long and tedious process that a taxpayer has to go through to secure said ruling. Why does the BIR instead focus on streamlining its procedures and fast track the process of securing a tax-free exchange ruling?
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You may contact the author at rester.nonato@yahoo.com.