BIR Ruling

April 3, 1970 Mr. A. Pizon, Jr. P. O. Box 127 Manila S i r : With reference to your letter dated September 11, 1969, I have the honor to inform you as follows: Should 5 persons transfer shares of stock and other real properties to a corporation to be organized in exchange for the latter's shares of stock and after the exchange the 5 persons acquire 100% control of the corporation no gain or loss shall be recognized in the transfer. cdta Should the transferee-corporation sell the shares of stock it received in exchange for its own, the cost basis to it of the shares shall be the same as it would be in the hands of the transferors. Should the transferors sell the shares of the corporation which they received in exchange for the shares and other real properties they transferred to the corporation their acquisition cost of the corporation shares shall be the same as the acquisition cost of the shares and other real properties they transferred to the corporation. The cash dividends to be received by the transferee-corporation from the shares of stock transferred to it shall be considered as personal holding company income. Dividends which the transferee-corporation will receive from stocks or other securities purchased with its own funds shall likewise be considered as personal holding company income. The gain to be realized by the transferee-corporation from the sale of the real estate transferred to it in exchange for its share of stock will not be considered personal holding company income. The transferee-corporation will not be liable to the 45% tax prescribed by Section 63 of the Tax on its profits which it declares as cash dividends; neither will it be subject to said tax on stock dividends it will issue to its stockholders if the stock dividends so declared represents the transfer of surplus to the capital account of the corporation. cdti Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue