BIR Ruling [DA-059-98]

February 19, 1998 BIR RULING [DA-059-98] Ramon F. Garcia & Company Suite 410 Manila Bank Building Ayala Avenue, Makati City Attention: Mr . Ramon F . Garcia Gentlemen : This refers to your letter dated August 11, 1997 stating that your clients, Messrs . SANTIAGO CUA and SOLOMON CUA , are the owners of 1,360,000 shares of EBEDEV, Inc ., a domestic corporation engaged in real estate development; that on December 19, 1996, they sold all their shares of stocks at P1.07/share which is also the current book value per share of EBEDEV, Inc., as of July 31, 1997; that the par value per share of said company is P1.00; that immediately thereafter, your client paid the corresponding documentary stamp tax and capital gains tax using the book value per share as the basis in accordance with Revenue Regulations No. 2-82; and that the said shares in EBEDEV, Inc. are not listed nor traded in the stock exchange. LLpr It is noted that in the Deed of Assignment submitted to this Office, the said Deed was made and executed by and between Florencio Orendon, Jr., Edgardo B. Espiritu, John B. Espiritu, Betty Wang, Roberto P. Alvarez, Santiago Cua, Santiago S. Cua, Jr., Henry Cua Loping, Vicente Cua Loping, Solomon S. Cua, Manuel Tan Kian See, Thing on Development Corporation and ACL Development Corporation, as assignors of the 80,000,000 EBEDEV, Inc. shares, and Zipporah Mining & Industrial Corporation, as the assignee of the said 80,000,000 EBEDEV, Inc. shares; that the said assignors sold their shares in EBEDEV, Inc. in favor of the assignee for and in consideration of P85,600,000.00; and that the assignee shall be responsible for the payment of the documentary stamp tax. Based on the foregoing representations and documents submitted, you are now requesting in effect for a ruling on the following queries; "1. Are my clients still liable for any additional taxes? "2. Did my clients fully complied with the provisions of Sec. 21(d), Sec. 33(a)(3) and Sec. 34 of the National Internal Revenue Code as implemented by Revenue Regulations No. 2-82?" In reply, please be informed that under then Sections 21(d)(1) and 24(e)(2)(A) of the Tax Code, as amended, capital gains realized from the sale, exchange or other disposition of shares of stock in any domestic corporation shall be taxed on the net capital gains as defined in then Section 33(a)(2) of the same Code, realized during each taxable year from the sale, exchange or other disposition of shares of stock not traded through a local stock exchange at the following rates: prll Not over P100,000 10% Over P100,000 20% In this connection, under Section 6(a)(3)(i) of Revenue Regulations No. 2-82, in determining the tax base in the case of sale, transfer or exchange of shares not listed in the stock exchange, the unlisted shares shall be valued at their book value nearest the valuation date. The book value of these unlisted shares of stock shall be prima facie considered as their fair market value. Such being the case, both individual and corporate taxpayers are liable to pay the 10% or 20% capital gains tax imposed under then Sections 21(d)(1) and 24(e)(2)(A) of the Tax Code, as amended, on the net gains they have realized on the sale, exchange, or other disposition of their shares of stock not traded through or listed in the stock exchange based on the book value on the said shares. Accordingly, your clients, having paid the capital gains tax on the sale of their EBEDEV, Inc. shares based on the book value of said shares, have complied with the provisions of then Section 21(d)(1) of the Tax Code, as implemented by Revenue Regulations No. 2-82. After your clients paid the respective capital gains tax due on their sale of their EBEDEV, Inc. shares of stock, they are no longer liable for any additional taxes on said sale transaction. Moreover, documentary stamp tax may be imposed against the Assignor or the Assignee under Section 176 of the Tax Code, as amended, on the Deed of Assignment executed to effect the aforesaid sale of EBEDEV, Inc. shares of stocks. (BIR Ruling Nos. 193-89 dated September 8, 1989, 221-86 dated October 10, 1986, 011-86 dated February 18, 1986 and 014-85 dated February 7, 1985) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. cdtech Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)