BIR Ruling

March 6, 1974 Mr. George T. Marcelo President, Vynil Products, Philippines P. O. Box 3779, Manila S i r : This refers to your letter dated September 26, 1973 requesting information as to whether an assignment of shares to the DBP would violate BOI Ruling No. 5186 on the exemption from the capital gains tax, viz: "Exemption from income tax on the portion of the gains realized from the sale disposition or transfer of capital assets, as defined in Section thirty-four of the National Internal Revenue Code that corresponds to the portion of the proceeds of the sale that is invested in new issues of capital stock of, or in the purchase of stock owned by foreigners, in pioneer enterprises within six months from the date of the gains were realized: Provided, 1) that such sale, disposition or transfer and the investment of the proceeds thereof are registered with the Board and the BIR; 2) that the shares of stock representing the investment are not disposed or transferred, assigned or conveyed for a period of three (3) years from the date the investment was made . If said shares of stock are disposed of within the said period of three (3) years, all taxes due on the gains realized from the original transfer, sale or disposition of the capital assets shall immediately become due and payable ." aisa dc As represented, since they are the one guaranteeing the loan on this particular project, the DBP resolutions says: "By an assignment to DBP of subscribed and outstanding voting shares of Vynil Products Philippines necessary to constitute no less than 67% of the voting power of the entire number of stockholders entitled to vote. DBP shall further have the option to exercise the right in the event Vynil Products Philippines shall be in arrears with DBP for over ninety (90) days." In reply thereto, I have the honor to inform you that if the assignment of shares to the DBP is for the purpose of having the shares as collaterals or security for a loan transaction without actual transfer of the ownership thereof, the conditions as regards the exemption from capital gains tax are deemed not violated. Otherwise, there would be a violation of the conditions as regards the exemption from the capital gains tax. casia Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR.