BIR Ruling [DA-228-02]

December 2, 2002 BIR RULING [DA-228-02] 40 (C) (2) & (6) (c) Carandang & Carandang Law Partnership S-1B Sunvar Plaza 156 Amorsolo Street, Legaspi Village Makati City 1200 Attention: Atty. Dante A. Carandang Gentlemen : This refers to your letter dated November 22, 2002, the contents of which is quoted as follows: ''In our letter dated 27 May 2002 . . ., which was received by your office, on 9 July 2002, we sought to amend BIR Ruling (S40-012-2001) dated 28 February 2001 to correct the errors inadvertently committed and to give effect to the real intention of the parties, to wit: 1. Error in the area subject to tax free exchange; aSIDCT 2. Error in the inclusion of the straight sale transaction in the tax-free exchange. 3. Error in the allocation of shares between spouses Dante and Ellen Grace Carandang; and 4. Error in the Appraisal Value of the land subject to the tax-free exchange. "Last 13 November 2002, your office issued its BIR Amendatory Ruling (DA-204-2002) . . ., which clearly addressed and resolved said Errors Except Error No. 4 . "Specifically, in page 5 of our afore-said letter . . ., we requested that: "4. The following Fair Market Appraisal Value by Cuervo Appraisers, as contained in the Appraisal report dated 30 September 1999, be accordingly reflected in said ruling: Name TCT Appraisal Value No. by Cuervo Appraisers, Inc. MG Carandang 30326 11,578,000.00 Development Corporation 22513 6,016,000.00 Genesis Farm Corp. 30325 13,744,000.00 Benjamin A. Carandang 30385 22,696,000.00 Rey A. Carandang 30386 13,748,000.00 Dante A. Carandang 30387 13,748,000.00 Married to Ellen Grace Carandang "However, in your afore-said Amendatory Ruling . . ., the above Fair Market Appraisal Value (FMAV for brief) was not reflected. Instead, the same appraisal value, as stated in page 2 of your BIR Ruling-S40-012-2001 . . . was copied. "The Amendatory BIR Ruling DA-204-2002 . . ., particularly page 3 and 4 thereof, while making reference to the "Fair Market Value Appraisal" dated September 30, 1999 by Cuervo Appraisers, Inc., made amendments to read, among others, the following: "1. . . . 2. . . . 3. The Fair Market Appraisal Value by Cuervo Appraiser, Inc.., as contained in the appraisal report dated 1 September 1999 should reflect the following: Name TCT No. Appraisal Value by Cuervo Appraisers, Inc. G Carandang Development (Portion of) Corporation 30326 6,526,000.00 22,513 - Genesis Farm Corp. 30325 7,559,200.00 Benjamin A. Carandang 30385 12,482,800.00 Rey A. Carandang 30386 10,311,000.00 Dante A. Carandang Married to 30387 10,311,000.00 Ellen Grace Carandang "For the record, the FMAV dated 30 September 1999 truly reflects the intention of the parties in their Memorandum of Agreement (MOA) dated 7 April 2000 . . . . Section 3.1 thereof clearly states that the total aggregate price of real properties consisting of several parcels of land with improvements owned by the Carandang Group to be used as paid-up capital of, FAITH in accordance with clause 3.2 below is P104,226,000.00 . "Per FMAV dated 30 September 1999, the total appraisal value is P104,226,000.00, to wit: Name TCT No. Appraisal Value by Cuervo Appraisers, Inc. MG Carandang 30326 (portion) 11,578,000.00 Development Corporation 22513 6,016,000.00 Genesis Farm Corp. 30325 13,744,000.00 Benjamin A. Carandang 30385 22,696,000.00 Rey A. Carandang 30386 13,748,000.00 Dante A. Carandang Married 30387 13,748,000.00 to Ellen Grace Carandang Ellen Grace L. Carandang* 61627 22,696,000.00 Married to Dante A. Carandang Total: P104,226,000.00 * Said property was excluded from tax-free exchange and was subjected to capital gains tax. "Accordingly, we ask your office to correct afore-explained error to reflect the following: Name TCT No. Appraisal Value of Cuervo Appraisers, Inc. MG Carandang Development Corporation 30326 (portion) 11,578,000.00 22513 6,016,000.00 Genesis Farm Corp. 30325 13,744,000.00 Benjamin A. Carandang 30385 22,696,000.00 Rey A. Carandang 30386 13,748,000.00 Dante A. Carandang Married to 30387 13,748,000.00 Ellen Grace Carandang" Based on the foregoing, we correct the omission as requested since the transfer by M.G. Carandang Development Corporation, Genesis Farm Corporation, Benjamin A. Carandang, Rey A. Carandang, and Dante Carandang of their properties in exchange for shares of stock of the transferee corporation, First Asia Institute of Technology and Humanities, Inc. will not alter the control which they earlier had. M.G. Carandang Development Corporation, Genesis Farm Corporation, Benjamin A. Carandang, Rey A. Carandang, and Dante Carandang would still gain control of the transferee corporation by owning 57.84% of its total voting stocks. Hence, no gain or loss shall be recognized by the transferors and the transferee corporation on such exchange. However, it should be stressed that pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another person is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher. Accordingly, if a parcel of land, is exchanged with stocks in a corporation as in this case, the documentary stamp tax on the Deed of Assignment executed to effect the aforesaid transfer should be based on the consideration or the fair market value of the real property, whichever is higher. After payment of the corresponding documentary stamp tax, the real properties may be registered by the Register of Deeds concerned in the name of the transferee corporation, First Asia Institute of Technology and Humanities, Inc. You are further advised that the other conditions stated in BIR Ruling Nos. S40-012-2001 and DA-204-2002 shall remain in effect and should be complied with by the transferors and the transferee corporation. 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, and/or any of the requirements imposed in this letter is not complied with, then this ruling shall be considered null and void. This ruling amends BIR Ruling Nos. S40-012-2001 dated February 28, 2001 and DA-204-2002 dated November 13, 2002. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service