BIR Ruling [DA-091-05]

March 14, 2005 BIR RULING [DA-091-05] Alexander E. Ramos & Associates Suite 815 Cityland Herrera Rower V.A. Rufino cor. Valero Street Salcedo Village Makati City Attention: Mr. Alexander E. Ramos External Auditor Gentlemen : This refers to your undated letter stating that on November 22, 2004, a Deed of Extra-Judicial Settlement with Waiver of Rights was executed by the surviving spouse and legitimate children of the late Filomeno Rubio Espiritu, namely: Bienvenida Espiritu, Angelina Espiritu, Teresita Espiritu-Aque, Estelita Espiritu-Daggett, Alex Espiritu, Emma Espiritu, Antonina Espiritu, Emmanuel Espiritu and Rosalina Espiritu-Picar, who died intestate on August 10, 2003 in Makati City; that prior to his death, the late Filomeno Rubio-Espiritu together with his widow was the absolute and registered owners of three (3) parcels of land together with the improvements thereon; that however, the said properties were the subject of a Deed of Assignment executed by them in exchange for 30,000 shares of stock of Filben Realty and Development Corporation; and that the said properties were now registered in the name of the said corporation. In connection therewith, you now request for an opinion that for purposes of computing the estate tax of the late Filomeno Rubio Espiritu, it is the book value of the shares of stock in Filbert Realty and Development Corporation that should be considered. In reply thereto, please be informed that Section 85 of the Tax Code of 1997 provides that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the case of a non-resident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate. In relation thereto, Section 5 of Revenue Regulations No. 2-2003 provides that in the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their book value while unlisted preferred shares are valued at par value. In determining the books value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any. It is clear that in the case of a resident decedent, the value of the gross estate shall be determined by including the following: 1) real property located in the Philippines or abroad; 2) tangible personal property located in the Philippines or abroad; and 3) intangible property wherever located. Considering that at the time of death of Filomeno Rubio Espiritu, the only property left by the latter consists merely of shares of stock in Filben Realty & Development Corporation to which he had beneficial interest with a book value of P1,950,000.00, it is this value of corporate stocks owned by the decedent that should be included in his gross estate for purposes of estate tax. Accordingly, the properties which are now registered in the name of Filben Realty & Development Corporation should now be excluded from his gross estate. WHEREFORE, this Office holds that the corporate value of the stocks in Filben Realty & Development Corporation in the amount of P1,950,000.00 should be included in the gross estate of the late Filomeno Rubio Espiritu for purposes of computing the estate tax due on the transmission of the said estate to the heirs. cHaDIA 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group