BIR Ruling

December 4, 1975 BF Homes, Incorporated Intramuros BF Condominium Manila Attention: Mr . Eugenio A . Osias, Jr . Asst . Vice President Gentlemen : This refers to your letter dated November 12, 1975 requesting a ruling as to the tax consequence of the following contemplated transactions: "Facts "BF Homes, Inc. and Philippines Shares Corporation, both engaged in the real estate business, are in control of Bagumbayan Corporation. Except for a few qualifying shares owned by others, BF Homes, Inc. and Philippines Shares Corporation own Bagumbayan Corporation to the extent of 50% each. "Transactions "(1) BF Homes, Inc. and Philippine Share Corporation will transfer simultaneously their condominium units (stock in trade) to Bagumbayan Corporation in exchange for Bagumbayan Corporation's stock. The condominium units will be valued at fair market value and BF Homes, Inc. and Philippine Shares Corporation will receive an equivalent value of shares at par which, for all intents and purposes, may be considered the fair market value of the said shares of stock. casia "(2) After the transactions, BF Homes, Inc. and Philippine Shares Corporation will still retain control of Bagumbayan Corporation." In reply, I have the honor to inform you that pursuant To Section 35(c)(2) of the Tax Code, as amended by Republic Act No. 4522, no gain or loss shall be recognized if BF Homes, Inc. and Philippine Shares Corporation exchange their properties solely for stock in the bagumbayan Corporation controlled by the said transferor-corporations. " Incorporations and transfers to controlled corporation . When a sole proprietor or partnership decides to incorporate the business, the usual method is to transfer most or all the business assets to the newly-formed corporation in exchange for which the proprietor or partners take all of its stocks or stock securities. Such an incorporation transfer and a transfer of property by one or more persons to their existing stock or securities of the corporation both have the same general effect for tax purposes ." Emphasis ours; 33 Am. Jur. 2d 572) 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 of other basis hereof 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; (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 in 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. cdt Very truly yours, (SGD.) EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3