BIR Ruling

November 14, 1974 The President Merchants Banking Corporation of the Philippines 313 Buendia Ave. Extension Makati, Rizal S i r : This refers to your letter dated November 4, 1974 requesting information as to whether or not the assets acquired and to be disposed of by your corporation under the transaction therein represented are capital assets. Your representation is briefly summarized as follows: B, a finance company, was converted into a development corporation, A, with the primary purpose of developing lands for hotels, resorts, commercial and apartment buildings. A, accordingly purchased several parcels of land for development. However, because of the gigantic requirements of land development which you felt you could not do all by yourselves, you decided to form another corporation called C Estate Development Corporation (BOI) registered) in consortium with an American insurance firm which shall own 40% of its capital stock. This American insurance firm will, in addition, lend some substantial amount to A corporation. A, corporation will now sell the lands it previously acquired, which may be in a series of sales by parcel in view of their very substantial value and utilize the proceeds of sale in payment of its subscription to 60% of the capital stock of C corporation. C corporation may even directly purchase some of the lands of A corporation. This lands remain in their raw form as when A originally purchased them. A corporation will then become a mere investment company. In reply, I have the honor to inform you that the lands acquired by A corporation which it did not develop as originally envisaged were capital assets to it, they not having been actually used in business. Accordingly, the gains that A corporation shall derive from the disposition of its lands shall be considered as derived from the disposition of capital assets and shall be treated accordingly for tax purposes as provided for under existing laws. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5