BIR Ruling

January 13, 1967 Monzon Law Office 7th Floor JMT Building 6764 Ayala Avenue Makati, Rizal Gentlemen : This refers to the query in your letter dated July 20, 1966, which is stated as follows: LibLex "We hereby requests for your confirmation that, under the existing rulings of your office, the transfer of assets which Mr. Aurelio Montinola, Sr. proposes to make the Montivar, Inc. as set out below, would not be subject to Philippine income or gift taxes. "Montivar, Inc. is a Philippine corporation which was organized on February 26, 1962. It had at the time of its organization a total authorized capital stock of P1,000.000 divided into 10,000 shares having a par value of P100 per share. Of the said authorized capital stock, 2,000 shares having a par value of P200,000 were subscribed for and fully paid in cash. Since then, additional subscriptions to the shares of stock of the corporation at the rate of P200,000 each year were made on May 29, 1964, May 15, 1965 and June 29, 1966. Each such subscription has been fully paid for in cash. The capital stock of Montivar, Inc. has been used to carry on the real estate business of the corporation. It has also made some investments. Except for the qualifying shares, all the outstanding shares of the corporation are owned 50-50 by Mr. and Mrs. Aurelio Montinola, Sr. "Mr. Aurelio Montinola was married on June 25, 1956. At the time of his marriage, he made a list of the various properties he owned which under the applicable rules of our civil law were to be considered as his separate property. All other properties acquired by him since the marriage, including all income earned since that date, would be conjugal property of the marriage. "In order to facilitate the eventual settlement of his estate, Mr. Aurelio Montinola proposes to transform from time to time to Montivar, Inc., solely in exchange for shares of stock of the latter, real and/or personal properties which are conjugal property. The shares of stock of Montivar, Inc. may be issued in his name alone or 50-50 in the respective names of Mr. and Mrs. Montinola. The properties will be transferred at cost and the shares of stock would be issued at par. In case the property transferred is subject to a liability, the liability would be assumed by Montivar, Inc. and the amount of the liability would be deducted from the cost of the properties transferred in order to arrive at the number of shares which the corporation will issue. "In your ruling No. 308, series of 1961, dated July 11, 1961, your office stated that the proposed transfer by spouses of properties owned by them to a corporation wholly owned by them would be subject to Philippine income or gift tax, provided the transfers are made at cost. A plain copy of this ruling is attached for your ready reference. "We would appreciate your confirming that the proposed transfers by Mr. Aurelio Montinola of real and/or personal properties to Montivar, Inc., on the basis of the facts set out, above would not be subject to any income or gift taxes." aisadc In reply, I have the honor to inform you that, if as represented, the conjugal properties of the spouses are to be transferred at cost for shares of stock of Montivar, Inc., the said transfer will not be subject to any income or gift tax. For this purpose, cost should be understood as the adjusted cost basis. Should the property be subject to a liability which is assumed by the corporation, the cost basis of the shares received in exchange consists of the adjusted cost basis of the property transferred less the amount of the liability. All of these informations should be recorded in the books of the corporation and carried over from year to year. If the qualifying shares of the other directors were paid for by the spouses or either of them, the transaction is subject to the gift taxes. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue