BIR Ruling

February 19, 1976 Mr. Francisco Balmocena Dee Frabal Fishing Industries Pier 14, Slip 13, North Harbor M a n i l a S i r : This refers to your letter dated January 5, 1976 requesting a ruling as to the tax consequence of the contemplated transfer of your fishing properties to the Frabal Fishing and Ice Plant Corporation solely in exchange for its shares of stock. cdt It is represented that you are the proprietor of the Frabal Fishing Industries; that you are intending to transfer your fishing properties to the Frabal Fishing and Ice Plant Corporation solely in exchange for its shares of stock; and that the Frabal Fishing and Ice Plant Corporation has an authorized capital stock of P3,000,000.00 divided into 30,000 shares with a par value of P100.00 per share, of which 6,000 shares valued at P600,000.00 has been subscribed and paid-in, broken down as follows: Name Subscriptions Paid-Up 1. Francisco Balmocena Dee P300,000.00 P300,000.00 2. Aurea Mateo Dee 90,000.00 90,000.00 3. Maria Aurora M. Dee 60,000.00 60,000.00 4. Maria Victoria M. Dee 60,000.00 60,000.00 5. Ramon M. Dee 30,000.00 30,000:00 6. Benjamin D. Lim 30,000.00 30,000.00 7. Norberto D. Lim 30,000.00 30,000.00 TOTAL P600,000.00 P600,000.00 In reply thereto, I have the honor to inform you that pursuant to Section 35 paragraph (c)(2)(c) 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 term "control" shall mean ownership of stocks in a corporation possessing at least fifty-one (51%) per cent of the total voting power of all classes of stocks entitled to vote. Accordingly, no gain or loss shall be recognized on your transfer of your fishing properties in exchange for shares of stock of the Frabal Fishing and Ice Plant Corporation it appearing that after the exchange you together with four others will gain control of the corporation. In such cases, however, the parties to the exchange should comply with the requirements hereunder mentioned: (a) 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: (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 the 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 time of the exchange; (b) The transferee corporation on the other hand must file with its income tax return for the taxable year in which the exchange was consummated the following: (1) A complete description of all property received from the transferors; (2) A statement of the original acquisition cost or other basis thereof in the hands of the transferee and adjusted cost basis at the time of the 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; cdtech (b) the classes of stock and number of shares issued to the transferors in the exchange; (c) the fair market value of the capital stock as of the date of the exchange which was issued to the transferors. In addition to the foregoing requirements, permanent records on 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 stock received in the exchange. cd Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."