BIR Ruling

January 22, 1976 Caltex Philippines Petroleum Company, Inc. 540 Padre Faura Manila Attention: Mr . J . F . Hennelly Gentlemen : This refers to your letter dated August 6, 1975 requesting a ruling as to the tax consequence of the transfer of certain parcels of land owned by Caltex Philippines Petroleum Company, Inc. (hereinafter referred to as Caltex Petroleum) in exchange for the shares of stock of the Batangas Land Company, (hereinafter referred to as BLC). It appears that by virtue of a Deed of Assignment dated May 26, 1975, the following corporations transferred certain parcels of land to BLC in exchange for the latter's shares of stock with par value of P1,000 per share: Caltex (Philippines) Inc. P13,443,000.00 Caltex Philippines Petroleum Company, Inc. 806,000.00 National Development Company (NDC) 21,974,000.00 P36,223,000.00 ============ From the foregoing transaction, it is clear that NDC acquired 60.4% of the subscribed capital stock of BLC while the other two (2) corporations acquired the remaining 39.6%. In reply thereto, I have the honor to inform you that pursuant to Section 35 paragraph (c)(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. 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. aisadc Accordingly, no gain or loss shall be recognized on the transfer by Caltex Petroleum of its parcels of land in exchange for the shares of stock of BLC, it appearing that as a result of such exchange, Caltex Petroleum, together with the two (2) abovenamed corporations, gains control of the latter corporation. It should be understood, however, that if Caltex Petroleum later sells or exchanges the BLC shares of stock, it shall be subject to income tax on the gains derived from such exchange or sale, and the cost basis of said shares of stock shall be the same as the original acquisition cost or adjusted cost basis to Caltex Petroleum of the parcels of land exchanged therefor. (see Sec. 35(c)(4), Tax Code) In this connection please be advised that the parties to the exchange must file with their income tax returns for the taxable year in which the exchange was consummated a complete statement of facts pertinent to the exchange. The statement of the transferor (Caltex Petroleum), should include the following information 1. A description of the property transferred, together with a statement of the original acquisition cost or other basis thereof 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 date of exchange. The transferee corporation (BLC) should include the following in the statement to be filed with its income tax return 1. A complete description of all property received from the transferor; 2 A statement of the original acquisition cost or other basis of the property in the hands of the transferor and the adjusted cost basis thereof at the time of the transfer; 3. Information on 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; and (c) The fair market value of the capital stock issued to the transferor as of the date of exchange. In addition to the foregoing requirements, permanent records in substantial form must be kept by each party to the exchange, which should show the information hereinabove listed. cdtech Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."