BIR Ruling

January 27, 1967 Miss Marieta P. Lanzar 1525 Colorado St. Malate, Manila M a d a m : This refers to your letter dated June 12, 1966 requesting information as to whether or not your property exchanged for shares of stock in a corporation is subject to tax on capital gains. LexLib In reply thereto, I have the honor to inform you that pursuant to Section 35, paragraph 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. It is the spirit and purpose of Republic Act No. 4522, among others, to enable sound business enterprises to grow and expand by being able to invite others to invest capital therein. (Explanatory Note H. Bill No. 14472). Accordingly, this Office believes and so holds that no gain or loss will be recognized on your contemplated transfer of property at reappraised value to the corporation referred to in your query provided that you, alone or together with four others, will gain control of the corporation after the exchange. 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. The acquisition cost to the transferor of the shares of stock shall be the same as the acquisition cost of the property given in exchange. The acquisition cost to the transferor of the property given in exchange should be recorded in the books of the transferee corporation and carried over from year to year. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue