by Carlo John R. Pascual
The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Order (RMO) No. 17-2016 which provides for additional guidelines for the non-recognition of gain or loss on the transfer of property in exchange for shares of stock. As a general rule, the entire amount of the gain or loss arising from the sale or exchange of property shall be recognized. However, Section 40 (C) (2) of the National Internal Revenue Code provides for certain exceptions. In case of a plan of merger or consolidation, no gain or loss shall be recognized if such transaction involves, a)transfer of property in exchange for shares of stock, b)transfer of securities in exchange for shares of stock, c) transfer of securities in exchange for shares of stock. The same provision likewise provides that "no gain or loss shall also 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." These transactions are better known as tax-free exchanges.