BIR Ruling

October 12, 1966 The General Manager Esso Standard Eastern, Inc. 1071 United Nations Avenue Manila S i r : This refers to your letter dated July 6, 1966 requesting legal opinion on the question of whether or not the transaction described in your letter dated January 4, 1965 qualifies as a tax-free exchange under Section 35(c)(2) of the Tax Code, as amended by Republic Act No. 4522. cdtech As represented by you, Esso Standard Eastern, Inc. (hereinafter referred to as ESSO) is a corporation organized and existing under the laws of the State of Delaware, U.S.A., with principal office at 15 West 51st Street, New York 19, New York, and is engaged in the business of selling petroleum products in the Philippines thru its local branch. ESSO plans to transfer substantially all of the marketing assets of its branch in the Philippines to ESSO Standard Philippines, Inc. (hereinafter referred to as ESPI), a local corporation to be established specifically for the purpose of being the corporate recipient of the transferred assets. The transfer of ESSO's branch marketing assets will be effected solely in exchange for the shares of stock of ESPI. The assets to be received from the Branch and the liabilities to be assumed to ESPI will be recorded in the books of ESPI at the same values at which such assets and liabilities are recorded in the books of the transferor branch. The ESPI stocks to be received in exchange by the branch will have for their tax basis an amount equal to the net book value of the assets transferred less the amount of any liability to be assumed by ESPI in the exchange. Immediately after the exchange ESSO will control ESPI by owning all of the latter's stocks, except the qualifying shares of directors. In reply thereto, I have the honor to inform you that it appearing that substantially all the assets of ESSO's branch will be transferred to ESPI in exchange for stocks of the latter and that as a result of the transaction, ESSO will control ESPI by owning all of the latter's stocks except the qualifying shares of directors; that ESPI will be incorporated in order to carry on the business activities of the branch; and that the assets shall be transferred at its net book value (original acquisition cost less depreciation), the said exchange is an exempt transaction within the purview of Section 35(c)(2) of the Tax Code as amended by Republic Act No. 4522 which reads thus: LexLib ". . . 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: provided, that stocks issued for services shall not be considered as issued in return for property." In this connection, it is informed that parties to the exchange should comply with the following requirements: 1. A deed of assignment or deed of exchange should be executed by the transferor exchanging property or asset for shares of stock in a corporation, and said instrument should disclose; (a) the net book value of the property or asset exchange for stock; (b) the number and par value of the shares of stock received in consideration for the transfer of every item of property or asset to the corporation; and (c) the amount of the liability assumed by the corporation on account of the transfer of encumbered property; 2. Within ten days after the consummation of the exchange, the parties thereto shall furnish the Bureau of Internal Revenue with a copy of the deed of assignment or deed of exchange. 3. The corporation shall notify the Bureau of Internal Revenue of every sale or transfer of any shares of stock involved in every exchange within ten days from the date said sale or transfer is consummated. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue