by Ramon Christopher Ganan
The power to tax is an incident of sovereignty. It is a comprehensive, plenary and supreme. As a general rule, a state may levy taxes on anything and everything. Taxation is the rule and exemption is the exception. There are some instances, however, that our Tax Code allows imposition of lower tax tool is the tax-free exchange of properties subdivided into two types: 1) transfer to a controlled corporation and 2) transfer pursuant to a merger or consolidation.
Under the first category, Section (40)(C)(2) of the Tax Code provides that no gain or loss shall be recognized if a person, in exchange for shares of stock, transfers a property to a corporation. The stock transferee, alone or together with other persons not exceeding four, should gain contorl of said corporation. Control means ownership of stocks of at least 51 percent of the total voting power of all classes of stocks entitled to vote.
Pursuant to this tax-free exchange, the BIR released several revenue issuances including Revenue Regulations (RR) No. 18-01 which provides guidelines in the proper monitoring of the basis of properties transferred and shares received. RR No. 18-01 states that Certificate Authorizing Registration (CAR) or Tax Clearance (TCL) shall be issued by the BIR based on a certification or ruling which shall state that the transaction qualifies as tax-free exchange.