BIR Ruling

February 9, 1968 Mr. Mario S. Edurese Bldg. 1010, A. Mabini Ermita, Manila S i r : This refers to your letters dated January 2 and 9, 1968 requesting legal opinion as to the tax consequence of a transaction described as follows: It is represented that your client, a timber licensee transferred his logging assets in exchange for 60% of the shares of stock of the Philippine Lauan Industries Corporation, such after the exchange be gains control of the corporation. The transfer has been made pursuant to a letter directive of the Office of the President of the Philippines dated May 13, 1966 addressed to the Honorable, Secretary of Agriculture and Natural Resources enjoining all small timber licensees to form a cooperative, partnership or corporation with a total holding area of not less than 20,000 hectares of compact contiguous territory with an aggregate annual allowable cut of not less than 25,000 cubic meters, which shall be the minimum for forest unit on or before May 13, 1967 or face cancellation of their licenses. 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 R.A. 4522, no gain or loss shall be recognized if a person exchanges his property for stock in a corporation of which as result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation. The term "control" shall mean ownership of stocks in a corporation possessing at least fifty-one (51%) per cent of the total voting powers of all classes of stocks entitled to vote. Accordingly, no gain or loss shall be recognized on the transfer of the lodging assets of your client in exchange for 60% of the shares of stock of the corporation. In connection with the exchange herein involved, the transferor must file with his 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 his interest in such property, together with a statement of the original acquisition cost or other basis thereof and the adjusted cost basis at the time of 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 date of the exchange; On the other hand, the transferee corporation must file with its income tax return for the taxable year in which the exchange was consummated: (1) A complete description of all property received from the transferor; (2) A statement of the original acquisition cost or other basis thereof in the hands of the transferor and the adjusted cost basis at the time of 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 transferor in the exchange; (c) the fair market value of the capital stock as of the date of exchange which was issued to the transferor; 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. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue