BIR Ruling

February 21, 1974 Mr. Clemente J. Celso Certified Public Accountant Res. 662 Guillermo Street Gagalangin, Manila S i r : This refers to your letter dated February 12, 1974 requesting a ruling as to the tax consequence of a transaction described as follows: aisa dc It is represented that your client, Mr. & Mrs. Vicente de los Reyes, owns at least 70% of the total authorized capital stock of the Visayan Realty Corporation. For purposes of business expansion, he plans to exchange some of his assets for the stocks of the said firm to make himself in complete control thereof. In reply thereto, I have the honor to inform you that pursuant to Section 35 paragraph c(2) 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 other's, 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 to the total voting powers of all classes of stocks entitled to vote. Accordingly, no gain or loss shall be recognized on the transfer of your client's assets in exchange for the shares of stocks of the transferee 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 the transfer; (2) The kind of stock received and preference if any; cdt (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; 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 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 transferor in the exchange; (c) the fair market value of the capital stock as of the date of the 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 TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR.