BIR Ruling [DA-150-00]

March 13, 2000 BIR RULING [DA-150-00] 40 (C) (2) & (6) (b) 112-96 DA-150-2000 Sycip Salazar Hernandez & Gatmaitan Sycip Law All Asia Capital Center 105 Paseo de Roxas 1228 City of Makati Attention: Atty . Ernesto S . Taio , Jr . and Atty . Renato B . Lopez, Jr . Gentlemen : This refers to your letter dated August 28, 1998 requesting for a ruling that the transfer of the assets of International Bank of Singapore Limited (IBS) to the Overseas Union Bank Limited (OUB) pursuant to a merger in accordance with the laws of Singapore is not subject to Philippine tax, particularly income (capital gains), gift, value-added and documentary stamp taxes. It is represented that both, IBS and OUB are banking corporations duly organized and existing under the laws of Singapore; that IBS is a wholly-owned subsidiary of OUB; that IBS was licensed to operate an offshore banking unit (OBU) in the Philippines; that recently, IBS and OUB entered into a merger agreement in accordance with the Singapore laws; that the Certificate of Approval of Merger of OUB and IBS was issued by the Monetary Authority of Singapore on June 3, 1998; that under the Singapore Banking Act, upon the effectivity of the merger agreement, all of the business, property, assets and liabilities of IBS will be automatically transferred to and vest in OUB by operation of law as if in all respects OUB were the same person in law as IBS; and that the two condominium units covered by and more particularly described under Condominium Certificate of Title No. 7614 and 5560 issued by the Register of Deeds of Makati City are still in the name of IBS, which OUB wanted to be transferred in its name in accordance with the merger agreement. In reply, please be informed that based on the foregoing representations, no taxable sale, exchange or disposition of properties took place between OUB and IBS, since there is no effective transfer of beneficial ownership. In a merger, the surviving corporation (OUB) succeeds to the rights and liabilities of the absorbed corporation (IBS), and merely carries on the identity of the latter. (Cashman V. Browhee, 27 N.E. 560) Consequently, no gain was realized by the surviving bank OUB or its Philippine branch. (BIR Ruling No. 595-88 dated December 23, 1988). Such being the case, this Office is of the opinion as it hereby holds that no gain or loss shall be recognized on the transfer by the IBS of its resources and liabilities to the OUB as a consequence of the merger. Moreover, considering that the transfer of the assets and liabilities of IBS to OUB is pursuant to a merger, this Office is of the opinion, that the said transfer shall not be subject to donor's or to gift tax, since there is no intention to donate on the part of either or both parties and the transaction is effected purely for business reason. LibLex Finally, value-added tax (VAT) is imposed on the sale, barter, and exchange of properties in the course of trade or business. Section 109 of the Tax Code of 1997, as amended, defines the phrase "in the course of trade or business" as the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. An exchange of property pursuant to a merger is not a disposition or exchange of properties "in the course of trade or business" and is, therefor, not subject to VAT. In view thereof, this Office is of the opinion also that for VAT purposes, the transfer of assets, including tangible and movable properties pursuant to the merger by IBS to OUB will not be subject to any output tax and unused input tax of IBS will be absorbed by the surviving corporation (OUB). However, the transfer by IBS of its certificates of stock and its real properties to OUB shall be subject to the documentary stamp tax imposed under Section 176 and 196, respectively, both of the Tax Code of 1997. 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. LibLex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)