BIR Ruling

December 18, 1974 Mr. Jose Lozano 1350 M. de Comillas Manila S i r : This refers to your letter dated December 13, 1974 requesting information as to the tax incidents of a proposed transaction stated as follows: acd "AL and DM are co-owners of three (3) Islands covered by three (3) separate Certificate of Title in the following undivided proportions, to wit: AL 97.75% DM 7.25% "DM proposed for a formation of a partnership for purposes of developing the Islands." "DM proposed that their respective undivided ownerships in the Islands be transferred to a proposed partnership with a juridical personality to deal with third party or foreign investors." In answer to the specific inquiries posed, I have the honor to inform you as follows: 1. AL and DM shall be liable to income tax on the gain they will derive represented by the difference between the market value of the islands at the time of transfer to the partnership and their acquisition cost thereof pursuant to Section 35(c)(1) of the Tax Code. 2. AL and DM shall not be liable to any other internal revenue tax on the transfer. 3. In relation to question No. 4, we assume that the partnership will be an unregistered one; hence, as assumed by you in question No. 4, the partnership will be treated as a corporation for tax purposes. Under this assumption, AL and DM shall not be liable to any tax if the corporation will disposed of the properties to third parties, the latter being the one to be liable to tax on the gain it will derive to be represented by the difference between the selling price and its acquisition cost of the properties which is their market value when transferred to it by AL and DM. If the partnership is to be registered as a general partnership, the gain shall be taxable to AL and DM and the share of each in the gain shall be returned for taxation whether distributed to them or not pursuant to Section 26 of the Tax Code. 4. The answer to this question is already covered by the answer to question No. 3. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5