BIR Ruling

October 9, 1972 Atty. Felipe L. Gozon Law Offices Belo, Gozon & Abiera 6th Floor, PAL Building Ayala Avenue, Makati, Rizal S i r : This refers to your letter dated September 21, 1972 requesting a ruling in behalf of your clients, Mr. and Mrs. Benjamin M. Gozon, Sr., as to whether the following transactions fall within the purview of Section 35(c)(2) of the Tax Code, as amended by Republic Act No. 4522. cdt "My said clients, own real and personal property consisting of lands and shares of stocks which they intend to transfer, on the basis of the existing fair market value, to an existing corporation, Gozon Development Corporation, and as a consequence of which transfer, my said clients will control the said corporation." In reply thereto, I have the honor to inform you that pursuant to Section 35 paragraph (c)(2) of the Tax Code as amended by Republic Act No. 4522, no gain or loss shall be recognized if a person exchanges his property for stock in a 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. The transfer of your clients' real and personal properties for stocks in the Gozon Development Corporation which situation clearly comes within the purview of Section 35 of the Tax Code, as amended by Republic Act No. 4522. The term "control" means ownership of stocks in a corporation representing at least 51% of the total voting power of all classes of stocks entitled to vote. In connection with the exchange herein involved, the transferors must file with their income tax return for the taxable year in which the exchange was consummated a complete statement of all facts pertinent to the exchange, including: acd (1) A description of the property transferred, or of their interest in such property, together with a statement of the original acquisition cost or other basis thereof and the adjusted cost basis at the time of transfer; (2) The kind of stock received and preference if any; (3) The number of shares of each class received; (4) The fair market value per share of each class at the date of the exchange; On the other hand, the transferee corporation must file with its income tax return for the taxable year in which the exchange was consummated: (1) A complete description of all property received from the transferor; (2) A Statement of the original acquisition cost or other basis thereof in the hands of the transferor and the adjusted cost basis at the time of transfer; (3) Information with respect to the capital stock of the corporation including: (a) the total issued and outstanding capital stock immediately prior to and immediately after the exchange, with complete description of each class of stock; (b) the classes of stock and number of shares issued to the transferor in the exchange; (c) the fair market value of the capital stock as of the date of exchange which was issued to the transferor; In addition to the foregoing requirements, permanent records in substantial form must be kept by the taxpayer participating in the exchange showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of the stock received in exchange. cdtech Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue