BIR Ruling [DA-216-04]

April 21, 2004 BIR RULING [DA-216-04] 127 (A) 096-96 Easycall Communications, Inc. 2nd Floor, Mary Bachrach Building 25th cor. A.C. Delgado Streets Port Area, Manila Attention: Mr. Edgardo T. Abalos Executive Vice-President Gentlemen : This refers to your letter dated March 22, 2004 stating that Easycall Communications, Inc. (ECPI) is a corporation duly registered with the Securities and Exchange Communication (SEC) and is listed in the Philippine Stock Exchange (PSE); that it is primarily engaged in public telecommunications business and regulated by the National Telecommunications Commission (NTC); that on September 30, 2003, at least majority of the Board of Directors of ECPI approved the following, in their respective order: 1. Amendment to its Capital Stock by increasing its par value from P1.00 to P5.00 and at the same time decreasing the number of shares at a ratio of five (5) share to one (1) share, thereby maintaining the amount of authorized capital stock of P300 million and Outstanding Capital Stock of P159,519,311.00; 2. Decrease in par value from P5.00 to P1.00 thereby decreasing its authorized capital stock from P300 million to P60 million and Outstanding Capital Stock of P159,519,311.00 to P31,903,862.20, and 3. Increase in Capital Stock from P60 million divided into 60 million common shares at a par value of P1.00 to P300 million divided into 300 million common shares at a par value of P1.00 per share thereby increasing the authorized capital stock by P240 million divided into 240 million common shares at a par value of P1.00 per share and that out of said increase in capital stock P60 million worth of 60 million shares has been subscribed and fully paid by one of its major stockholders. that all of the above resolutions were ratified by the stockholder representing at least two-third (2/3) of the outstanding capital stock in a meeting duly called for such purpose on November 12, 2003; that all of the said resolutions were likewise approved by the SEC on March 2, 2004; that as a result of the decrease in capital stock, it is now necessary to replace all the stock certificates now in the hands of all stockholders with new ones so that the correct number of shares held shall be reflected therein; that in replacing the stock certificates, there would be no transfer of ownership or intent to transfer the same as they are just replacements thereof; and that as of March 10, 2004, there are at least 313 stockholders of record and all of them were issued the requisite stock certificates. In connection therewith, you now request confirmation of your opinion that no gain or loss shall be recognized on the replacement of stock certificates and neither is there documentary stamp tax due on the said replacement; and that the replacement of stock certificates is not one of donation as there is no donative intent but only to reflect the correct number of shares as a result of the decrease in capital stock duly approved by the SEC. In reply thereto, please be informed that in BIR Ruling No. 096-96 dated, September 3, 1996, this Office had already occasioned to rule on the matter, when it said that ". . . since the transaction is without any monetary consideration, and considering further that for the foregoing reasons, there is actually no transfer of ownership of the share or even a portion thereof, the issuance by the Corporate Secretary of the Club of a replacement stock certificate in the name of its true owner, Ms. Helen Go Chua only, is not subject to the capital gains tax imposed under Section 21(d) of the Tax Code, as amended. "Likewise, the replacement of Stock Certificate is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code, as amended, but only to the documentary stamp tax of P15.00 pursuant to Section 188 of the said Code, as amended by Republic Act No. 7600." cADaIH In the instant case, the surrender of the certificates of stock by the stockholders of ECPI is a necessary consequence of the decrease in the capital stock of the said corporation. Thus, in order to reflect the corrected number of shares therein, it is required that the stockholders of record should transfer and surrender their old certificates of stock to the corporation, without any monetary consideration, but only for the purpose of replacing the old stock certificates into new ones. In other words, there is no effective transfer of beneficial ownership over the said shares. Such being the case, the replacement of stock certificates is not subject to capital gains tax imposed under Section 127(A) of the Tax Code of 1997 nor to the documentary stamp tax prescribed in Section 176 of the said Code. Finally, the replacement of stock certificates is not subject to gift tax since there is no intention to donate on the part of any of the parties and the transaction is effected purely for business reasons. 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service