BIR Ruling

June 8, 1970 Messrs. J. S. Zulueta & Co. Certified Public Accountants Second Floor, Katigbak Building A. Mabini corner T.M. Kalaw St. Ermita, Manila S i r : This refers to your letter dated May 25, 1970 stating as follows: "Our client, Corporation A, fully owns the 5,000 outstanding shares (P500,000) for Corporation X, except for qualifying shares of other incorporators. The investment of Corporation A was made in the form of transfer of securities in 1966 from A to X at market value of P500,000, which was higher than cost in exchange of shares of Corporation X; the transfer did not involve any tax consequence on the part of Corporation A under Sec. 35(c) of the Internal Revenue Code. cdta "Because of certain requirements of the government, Corporation X has to increase its paid up capital from P500,000 to P1,000,000. Corporation A being the sole owner of Corporation X, in the mutual interest of both corporations, intends to transfer to Corporation X more of its securities having market value of at least P500,000, which is in excess of cost, in exchange of shares of Corporation X. No other party will contribute to the increase in the paid-up Capital of Corporation X. "Kindly inform us if the additional transfer of securities having a market value of at least P500,000, which is in excess of cost, from Corporation A to Corporation X, as above explained, involves no income tax consequences on the part of Corporation A." In reply, I have the honor to inform you that the transfer by "A" in the second transaction of securities at fair market value to "X" solely for "X" shares will not give rise to the recognition of gain or loss pursuant to Section 35(c) of the Tax Code, as amended by Republic Act No. 4522. It is of course understood that the cost basis of "X" shares in the hands of "A" shall be the same as the cost basis of the securities it transferred to "A" in the exchange; and the cost to "X" of the securities transferred to it by "A" shall be the same as it would be in the hands of "A". cdti Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue