Regulations Governing Exemption of Capital Gains Tax under Section 34(b) of the Tax Code, as amended

October 28, 1972 REVENUE REGULATIONS NO. 07-72 SUBJECT : Regulations Governing Exemption of Capital Gains Tax under Section 34(b) of the Tax Code, as amended and further amended by Presidential Decree Nos. 16 and 16-A TO : All internal revenue officers and others concerned Paragraph five of Presidential Decree No. 16 dated October 5, 1972 has been further amended by Presidential Decree No. 16-A dated October 5, 1972, which reads as follows: "Sec. 34(b). In the case of a taxpayer, other than a corporation, no gain or loss will be recognized on the portion of the gains realized that corresponds to the portion of the proceeds of the sale, disposition or transfer of capital assets, except shares of stocks of corporation covered in Section 4 of Republic Act No. 6141, invested in capital stocks of preferred productive enterprises or in the purchase of new issues of government bonds, securities, debentures and notes other than treasury bills, within six (6) months from the date the gains were realized: Provided , That the shares of stocks or government instruments representing the investments are not disposed of, transferred, assigned or conveyed for a period of three (3) years from the date the investment was made, otherwise all the taxes due on the gains realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable." cdt In accordance with the provisions of the said Presidential Decrees, the following rules are hereby promulgated: cdt SECTION 1. Scope and application of the amendment . All transactions involving the sale, disposition or transfer of capital assets contemplated in Section 34(a)(1) of the Tax Code, resulting in a gain or loss. The gain realized will be exempt from income tax, but the loss sustained shall not be allowed as deductible item on the gross income. SECTION 2. Exception to the rule . All transactions involving the sale or exchange of shares of stocks or corporations covered by Section 4 of Republic Act No. 6141 on which the stock transfer tax has been paid are not covered. SECTION 3. Entitled to the exemption . All taxpayers-individuals, duly registered general co-partnerships and general professional partnerships, except corporations as defined under Section 84(b) of the Tax Code, may avail of the exemption. SECTION 4. Conditions and requisites for exemption . In order to avail of the benefits of exemption on the gains realized that corresponds to the proceeds of the sale, disposition, transfer or exchange of capital assets, the following conditions must be met: A. The proceeds of the transaction must be invested, as initial capital, additional capital contribution or in new issues of capital stocks in any of the preferred areas of productive undertaking, to wit: 1. BOI registered enterprises; 2. NACIDA promoted industries; 3. BTTI sponsored tourist oriented projects; 4. Export oriented industries; 5. Banks: Rural, Private Development, Commercial; 6. Utilities: transport, communication, power; 7. Agricultural cooperatives; 8. Livestock and other agricultural development projects; or utilized in the purchase of new issues of the following instruments: 1. Government bonds; 2. Government securities other than treasury bills; 3. Government debentures; 4. Treasury notes. cdt B. Such investments must be made within six (6) months from the date the gain is realized. The shares of capital stocks or government issues representing the investment are not to be disposed of, transferred, assigned or conveyed within a period of three (3) years from the date of said investment. SECTION 5. Information requirements . All taxpayers availing of the exemption must file a notice with the Commissioner of Internal Revenue within thirty (30) days after the sale, disposition, or transfer of the capital asset setting forth the following: a) Name and address of the taxpayer; b) Taxpayer Account Number; c) Kind of asset sold or exchanged; d) The date when the asset was originally acquired and how it was acquired; e) The cost of acquisition, if acquired by purchase, the fair market value at the time of acquisition, if acquired by exchange or the fair market value used for transfer tax purposes, if acquired by gratuitous title; f) The total amount of the consideration of the sale, or the fair market value of the property received in exchange; and g) The gain or loss from the transaction. All investments made pursuant to the present amendment shall be reported to the Commissioner of Internal Revenue within thirty (30) days thereafter containing the following information: a) Name and address of the taxpayer; b) Taxpayer Account Number; c) Kind of investment made; and d) Amount of investment. SECTION 6. Penalty . Failure to comply with any of the conditions and requirements set forth shall nullify the benefits of the exemption and all the taxes due on the capital gains derived from the original transaction in capital assets shall be reckoned from the date it should have been paid as if no exemption was granted, with all the interests and penalties for late payment provided for in the National Internal Revenue Code, as amended. SECTION 7. Effectivity . The exemption from the capital gains tax provided for in the present amendment shall be for a period of one (1) year from the date of the promulgation of Presidential Decree No. 16, as amended. CESAR VIRATA Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue