BIR Ruling [DA-079-98]

March 13, 1998 BIR RULING [DA-079-98] Atty. Fe L. Concepcion No. 257 RPM Apts., Tanglaw St. Mandaluyong City M a d a m : This refers to your letter dated June 10, 1997 stating that under BIR Ruling No. S-34-027-95 (First Ruling), no gain was recognized on the transfer of their interests in four (4) parcels of land (Properties) by the following assignors: LLjur 1. Loreto Relova vda. De Pascual; 2. Edgardo R. Pascual; 3. Eduarda P. Macaranas; 4. Concepcion R. Pascual; and 5. Loreto R. Pascual, to the Corporation as payment for their respective subscriptions to the increase in the authorized capital stock thereof; that the transfer of their interests in the Properties by the following assignors: 1. Renato R. Pascual; 2. Miguel R Pascual; and 3. Teodula R. Pascual was held to be subject to capital gains tax; that as stated in the First Ruling, the following Properties were transferred by the assignors to the Corporation by way of payment of their subscriptions to the capital stock: TCT Assessed Property Location No. Area Value 1 Kalookan City 52038 535 sq. m. P96,150.00 2 Kalookan City 56528 330 sq. m. 268,495.00 3 Kalookan City 56521 598 sq. m. 486,545.00 4 Bambang, Bulacan 281966 149,451 sq. m. 421,350.00 that the assignors, as stated in the First Ruling, shall have the following percentage ownership in the Corporation before and after the transfer of the Properties: Present Present Additional Resulting Subscription % age of Subscription % age of Stockholder (In Shares) ownership (In Shares) ownership Loreto R. vda. de Pascual 2,964 74.1 8,601 73.261 Edgardo R. Pascual 148 3.7 455 3.82 Eduarda P. Macaranas 148 3.7 455 3.82 Concepcion R. Pascual 148 3.7 455 3.82 Loreto R. Pascual 148 3.7 455 3.82 Renato R. Pascual 148 3.7 455 3.82 Miguel R. Pascual, Jr. 147 3.675 455 3.8135 Teodula R. Pascual 146 3.65 455 3.807 that in addition to the foregoing Properties, however, Concepcion R. Pascual transferred another parcel of land registered in her name which, through the inadvertence of the handling lawyer at the time, was not included in the First Ruling; that as a result of the foregoing, a request for a supplemental ruling was filed on February 10, 1996; that on July 12, 1996, BIR Ruling No. S-34-296-96 (Supplemental Ruling) was issued, confirming the First Ruling, but with the following revised percentages of ownership, in view of the additional transfer of property by Concepcion R. Pascual: Present Present Additional Resulting Subscription % age of Subscription % age of Stockholder (In Shares) ownership (In Shares) ownership Loreto R. vda. de Pascual 2,964 74.1 8,601 69.01 Concepcion R. Pascual 148 3.7 1,426 9.39 Edgardo R. Pascual 148 3.7 455 3.60 Eduarda P. Macaranas 148 3.7 455 3.60 Loreto R. Pascual 148 3.7 455 3.60 Renato R. Pascual 148 3.7 455 3.59 Miguel R. Pascual, Jr. 147 3.675 455 3.58 Teodula R. Pascual 146 3.65 455 3.807 Mercita Sanchez 1 0.025 0 0.006 Marina Mallari 1 0.025 0 0.006 Miguel Theodore Pascual 1 0.025 0 0.006 Total 4,000 12,757 ===== ===== that unfortunately, however, it was discovered only recently, after the Supplemental Ruling had been issued, that the additional subscriptions were based on the assignors' respective interests in the following properties, to wit: Interest in Property Nos. Value Stockholder 1 2 3 4 Total Interest Loreto R. vda. de Pascual 496/648 496/648 10/18 P860,100.00 Concepcion R. Pascual 0 19/648 19/648 1/18 45,500.00 Edgardo R. Pascual 0 19/648 19/648 1/18 45,500.00 Eduarda P. Macaranas 0 19/648 19/648 1/18 45,500.00 Loreto R. Pascual 0 19/648 19/648 1/18 45,500.00 Renato R. Pascual 0 19/648 19/648 1/18 45,500.00 Miguel R. Pascual, Jr. 0 19/648 19/648 1/18 45,500.00 Teodula R. Pascual 0 19/648 19/648 1/18 45,500.00 that Loreto Relova vda. de Pascual acquired her interest over Property 1 by way of purchase; that Properties 2, 3 and 4, on the other hand, are conjugal properties of Loreto Relova vda. de Pascual and her deceased husband; that on the basis of the Inventory of Property submitted to the Court where the estate of Mrs. Pascual's husband was settled, the interests of Loreto Relova vda. de Pascual and their nine (9) children were determined to be as follows: Interest in Interest in Interest in Interest in Heir Property 1 Property 2 Property 3 Property 4 Loreto R. vda. de Pascual 477/648 477/648 9/18 Concepcion R. Pascual 0 19/648 19/648 1/18 Edgardo R. Pascual 0 19/648 19/648 1/18 Eduarda P. Macaranas 0 19/648 19/648 1/18 Loreto R. Pascual 0 19/648 19/648 1/18 Renato R. Pascual 0 19/648 19/648 1/18 Miguel R. Pascual, Jr. 0 19/648 19/648 1/18 Teodula R. Pascual 0 19/648 19/648 1/18 Raul R. Pascual 0 19/648 19/648 1/18 Teresita P. Bernabe 0 19/648 19/648 1/18 that on May 17, 1983, however, Teresita P. Bernabe, one of the heirs, sold her undivided interests in Property Nos. 2, 3 and 4 to Loreto R. Pascual, one of the heirs; that inadvertently, however, in computing the resulting interests of the other heirs as a consequence of said sale by Teresita P. Bernabe, her shares in the Properties were, mistakenly, imputed to her mother, Loreto Relova vda. de Pascual in view of the fact that her sister Loreto R. Pascual shared the same first name as their mother; that as a result of the said mistake, the interests of the other heirs and the values thereof (which was used as the basis of the Rulings) were, as stated above, determined as follows: Interest in Property Nos. Value Stockholder 1 2 3 4 Total Interest Loreto R. vda. de Pascual 496/648 496/648 10/18 P860,100.00 Concepcion R. Pascual 0 19/648 19/648 1/18 45,500.00 Edgardo R. Pascual 0 19/648 19/648 1/18 45,500.00 Eduarda P. Macaranas 0 19/648 19/648 1/18 45,500.00 Loreto R. Pascual 0 19/648 19/648 1/18 45,500.00 Renato R. Pascual 0 19/648 19/648 1/18 45,500.00 Miguel R. Pascual, Jr. 0 19/648 19/648 1/18 45,500.00 Teodula R. Pascual 0 19/648 19/648 1/18 45,500.00 that the correct computation of the resulting interests and the values thereof of the heirs should be as follows: Interest in Property Nos. Value Stockholder 1 2 3 4 Total Interest Loreto R. vda. de Pascual 477/648 477/648 9/18 P814,500.00 Concepcion R. Pascual 0 19/648 19/648 1/18 45,500.00 Edgardo R. Pascual 0 19/648 19/648 1/18 45,500.00 Eduarda P. Macaranas 0 19/648 19/648 1/18 45,500.00 Loreto R. Pascual 0 19/648 19/648 1/18 91,100.00 Miguel R. Pascual, Jr. 0 19/648 19/648 1/18 45,500.00 Teodula R. Pascual 0 19/648 19/648 1/18 45,500.00 that on the basis of the foregoing, the percentage holdings of the capital stock of the Corporation after the increase shall be as follows: Number of Additional % of Stockholder Shares Held Subscription Total Equity 1. Loreto R. vda. de Pascual 2,964 8,145 11,109 66.294 2. Concepcion R. Pascual 148 1,426 1,574 9.393 3. Loreto R. Pascual 148 911 1,059 6.319 4. Edgardo R. Pascual 148 455 603 3.598 5. Eduarda P. Macaranas 148 455 603 3.598 6. Renato R. Pascual 148 455 603 3.598 7. Miguel R. Pascual, Jr. 147 455 602 3.593 8. Teodula R. Pascual 146 455 601 3.587 9. Miguel Theodore Pascual 1 0 1 .006 10. Mercita Sanchez 1 0 1 .006 11. Marina Mallari 1 0 1 .006 Total 4,000 12,757 16,757 99.998 ===== ===== ===== ===== and that the resulting decrease in the additional subscription of Loreto Relova vda. de Pascual from 8,601 to 8,145 and the increase in that of Loreto R. Pascual from 455 to 911 and the resulting changes in their respective percentage equities in the increased capital stock of the Corporation will not, however, change the substance of the Rulings. Based on the foregoing, you now request for a confirmation that no gain shall be recognized on the transfer of the Properties by the following: 1. Loreto R. vda. de Pascual; 2. Concepcion R. Pascual; 3. Loreto R. Pascual; 4. Edgardo R. Pascual; and 5. Eduarda P. Macaranas. In reply, please be informed that after a re-examination of the supporting documents submitted by you which were made the basis of this ruling, this Office is of the opinion that no gain or loss shall be recognized both to the aforementioned transferors and the transferee corporation considering that as a consequence of the exchange, the transferor gained control of the transferee corporation by owning at least 51% of its total voting stocks. Accordingly, your request is hereby confirmed. (BIR Ruling No. S-34-027-95 dated February 2, 1995) 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. LLpr Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)