BIR Ruling [DA-060-98]

February 20, 1998 BIR RULING [DA-060-98] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated January 23, 1998 requesting in behalf of your client, Keppel Fels Energy Holdings, Inc. (FEHI), confirmation of your opinion that the redemption by FEHI of its Four Hundred Thirty Three Thousand Three Hundred Thirty (433,330) shares of stock from BV Power Limited (BVPL) and Sixty Six Thousand Six Hundred Sixty Five (66,665) shares from Okachi Investments, Limited (OIL) at the issue price of Two Thousand Five Hundred Pesos (P2,500.00) per share, which will not result to any capital gain on the part of BVPL and OIL, is not subject to capital gains tax. aisadc It is represented that FEHI is a domestic corporation duly registered with the Securities and Exchange Commission, with the following primary purpose: "To invest or acquire interest in, purchase, own or hold, directly or indirectly, shares of stock, debentures or securities and all other properties of whatever kind or nature, personal or movable, and to manage or dispose of the same as the corporation may deem necessary or advisable in the conduct of its business, without in any manner operating as an investment house without engaging as stockholder or holder of service" that FEHI has an authorized capital stock of One Million Pesos (P1,000,000.00) divided into Five Hundred Thousand (500,000) common shares with a par value of One Peso (P1.00) per share and Five Hundred Thousand (500,000) preferred shares with a par value of One Peso (P1.00) per share; that the preferred shares are non-cumulative, voting and convertible to common share and were issued at a price of Two Thousand Five Hundred Pesos (P2,500.00) per share; that these shares are redeemable at the stockholders' option at the issue price of Two Thousand Five Hundred Pesos (P2,500.00) per share and have been subscribed as follows: BV Power Limited 433,330 shares Okachi Investments Limited 66,665 shares and that at the option of the above stockholders, the above preferred shares have been offered and accepted by FEHI for redemption at the issue price of Two Thousand Five Hundred Pesos (P2,500.00) per share. In reply, please be informed that upon the redemption by FEHI of its preferred shares, the preferred shareholders will realize capital gain or loss consisting of the difference between the adjusted basis of the shares and the redemption price of such shares. (BIR Ruling No. 014-85 dated February 7, 1985) Since the Four Hundred Thirty Three Thousand Three Hundred Thirty (433,330) shares of BVPL and the Sixty Six Thousand Six Hundred Sixty Five (66,665) shares of OIL will be redeemed at the price of Two Thousand Five Hundred Pesos (P2,500.00), which is the same as the issue price or adjusted basis of said shares, the redemption of such shares by FEHI will not result to any capital gain on the part of BVPL and OIL. Accordingly, since there is no taxable gain, the redemption by FEHI of the shares of BVPL and OIL will not be subject to capital gains tax. 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)