BIR Ruling

January 28, 1974 Messrs. A. B. Encarnacion & Associates Law & Accounting Offices 2nd Flr., Doa Salud (Gibba) Bldg. 417 Dasmarias, Manila Attention: Mr . Alfonso B . Encarnacion Gentlemen : This refers to your letter dated June 4, 1973 requesting information as to whether in a transaction described hereunder your client can avail of the tax-exemption under Presidential Decree No. 16, as amended by Presidential Decree No. 16-A dated October 5, 1972 and as implemented by Revenue Regulations No. 7-72 and 7A-72, viz: "Our client has personal properties consisting of machineries with a value of P100,000.00. Because of poor business he had decided to assign and/or transfer his machineries to a corporation dealing in export oriented industry wherein he is one of the principal stockholders in the amount of P150,000.00 for which the corporation will issue and/or pay him from its unissued capital stock shares of stocks in the amount of P150,000.00. Ordinarily, there is a capital gain of P50,000.00 but because of the Presidential Decree No. 16 which among other states that if an investment is invested in any productive enterprise within six months from the date the gains are realized even the investment is exchanged from shares of stocks, no gain or lose will be recognized." In reply, thereto, I have the honor to inform you that the foregoing transaction involves an exchange of property under Section 35(C)(2) of the Tax Code for shares of stock of the transferee-corporation and not an investment as contemplated by Presidential Decree No. 16 as amended by Presidential Decree No. 16-A dated October 5, 1972. If, as a result of the exchange described above your client will gain control of the corporation by owing at least 51% of the total voting power of all classes of stocks entitled to vote, no gain or loss shall be recognized in the exchange. 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."