BIR Ruling

December 1, 1966 Mr. Ricardo M. Claudio Gabriel Building Corner Junquera & Sanciangko Streets Cebu City S i r : This is in reply to your request for a ruling on a query stated as follows: "I acquired some shares of stock three (3) years ago. From time to time I receive some stock dividends which I intend to sell. I would like to inquire from your good Office If I can treat the proceeds of the sale as: cdll "(1) regular income "(2) capital gains, the whole of percentage of what amount "(3) or are there some other methods aside from the two above." Stock dividends are civil fruits of the original investment. Said shares may be sold independently of the original shares, just as the offspring of a domestic animal may be sold independently of its mother. (Bachrach v. Seifert & Eleanaoff, 87 Phil. 483; Orozco et. al. v. Araneta et. al. G.R. No. 1-3691, November 21, 1951). Under Section 253 of the Income Tax Regulations, stock issued by a corporation, as a dividend, does not constitute taxable income to a stockholder in such corporation, but gain may be derived or loss sustained by the stockholder from the sale of such stock, which gain or loss will be treated as arising from the sale or exchange of a capital assets. (See also Sec. 34 N.I.R.C.). A stock dividend is clearly a capital asset. The gain derived from the sale of stock dividends may be taxable in full or up to the extent of only 5% thereof for income tax purposes, depending upon their holding period. When a non-taxable stock dividend is received, the date basis for determining the holding period for capital gains or loss purposes is the date basis of the old shares. The holding period of the shares acquired as stock dividend is coincident with the holding period of the underlying shares with respect to which the distribution was made. In other words, the holding period of non-taxable stock dividends should be tacked to the holding period of the original and regular shares of stock (See Federal Taxes, Vol. 2; Prentice Hall, pp. 9360-9361). llcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue