BIR Ruling [DA-236-98]

June 11, 1998 BIR RULING [DA-236-98] MAJA Development Corporation 54 E. Rodriguez Avenue Bagong Ilog Pasig City Attention: Ms . Maria Dolores C . Danaug Administrative Manager Gentlemen : This refers to your letter dated October 20, 1997 requesting for a ruling to the effect that the merger of Herran Realty and Development Corporation (Herran), Marikina River Real Estate Corporation (Marikina) and Maja Development Corporation (Maja), with Maja as the surviving corporation, qualifies as a tax-free reorganization under Section 35 (c)(2) of the Tax Code, as amended. LibLex It is represented that the Articles of Merger by and between Maja, Marikina and Herran was made and executed on March 28, 1983 and approved by the Securities and Exchange Commission on May 18, 1984. Herran is a domestic corporation duly registered with the Securities and Exchange Commission, the primary purpose of which is "to acquire by purchase, lease or otherwise, lands and interest in lands, and to own, hold, improve, develop, manage and subdivide any real estate so acquired or to erect or cause to be erected buildings, houses, structures and any other improvements on any lands, owned, held or occupied by the corporation; and to sell, lease, mortgage, encumber or otherwise deal with and dispose of such properties or interest therein as may be permitted by law"; that its authorized capital stock is Five Million Pesos (P5,000,000) divided into 5,000 shares with a par value of P1,000 per share, all of which have been fully subscribed and paid-up; and that as of May 18, 1984, its audited balance sheet shows total assets of P2,894,509.96, total liabilities of P468,466.32 and stockholders' equity of P2,426,043.64. Maja is a domestic corporation duly registered with the Securities and Exchange Commission, the primary purpose of which is "to hold, purchase or acquire shares of the capital stock of other corporations, whether foreign or domestic, and while the holder of any such shares of stock, to exercise all the rights, powers and privileges of ownership, including the right to vote thereon and to manage, operate and administer the business of such corporations affiliated with it to the same extent as any juridical person might or could do; provided that this corporation will not by implication or instruction engage in stock brokerage, financing and open-end and investments"; that its authorized capital stock is Twenty Million Pesos (P20,000,000) divided into 20,000 shares with a par value of P1,000 per share, all of which have been fully subscribed and paid-up; and that as of May 18, 1984, its audited balance sheet shows total assets of P6,808,585.47, total liabilities of P2,206,735.86 and stockholders' equity of P4,601,849.61. Marikina is a domestic corporation duly registered with the Securities and Exchange Commission, the primary purpose of which is "To acquire by purchase, lease or otherwise, lands and interest in lands; and to own, hold, improve, develop, manage and subdivide any real estate so acquired for commercial, industrial or residential use; to erect or cause to be erected buildings, houses, structures and any other improvements on any land owned, held or occupied by the corporation; and to sell, lease, mortgage, encumber or otherwise deal with and dispose of such properties or interest therein as may be permitted by law"; that its authorized capital stock is Ten Million Pesos (P10,000,000) divided into 10,000 shares with a par value of P1,000 per share; that HERRAN MARIKINA and MAJA's merger will have the following effects : LLjur a. "HERRAN and MARIKINA shall be merged with and into MAJA. Accordingly, upon approval of the Articles of Merger and issuance of the corresponding Certificate of Merger by the Securities and Exchange Commission, HERRAN and MARIKINA shall cease to exist while MAJA shall continue to be named MAJA DEVELOPMENT CORPORATION." b. "Upon accomplishment of the undertaking provided in Article II of the Articles of Merger, MAJA shall possess all the rights, privileges, immunities and franchises of HERRAN and MARIKINA over and above those originally belonging to MAJA, and all properties, real or personal, and all receivable due on whatever account including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to HERRAN and MARIKINA shall be taken and deemed to be transferred to and vested in MAJA without further act or deed." c. "MAJA shall be responsible and liable for all the liabilities and obligations of HERRAN and MARIKINA in the same manner as if MAJA had itself incurred such liabilities or obligations, and any claim, action or proceeding pending by or against HERRAN and MAJA shall be prosecuted by or against MAJA. Neither the rights of creditors nor any lien upon the property of HERRAN and MARIKINA shall be impaired by the merger." A. The plan of reorganization should be adopted by each of the corporations, parties thereto, the adoption being shown by the acts of its duly constituted responsible officers and appearing upon the official records of the corporation. Each corporation, which is a party to the reorganization, shall file, as part of its return for the taxable year within which the reorganization occurred a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization, including : (1) A copy of the plan of reorganization, together with a statement, executed under the penalties of perjury, showing in full the purposes thereof and in detail all transactions incident to, or pursuant to the plan. (2) A complete statement of all cost or other basis of all property, including all stocks or securities, transferred incident to the plan. (3) A statement of the amount of stock or securities and other property or money received from the exchange, including a statement of all distribution of other distribution of other disposition made thereof. The amount of each kind of stock or securities and other property received shall be stated on the basis of the fair market value thereof at the date of the exchange. (4) A statement of the amount and nature of any liabilities assumed upon the exchange, and the amount and nature of any liability to which any of the property acquired in the exchange is subject. B. Every taxpayer, other than a corporation, party to the reorganization, who received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in his income tax return for the taxable year in which the exchange takes place a complete statement of all facts pertinent to the non-recognition of gain or loss upon such exchange including: (1) A statement of the cost or other basis of the stock or securities transferred in the exchange; and (2) A statement in full of the amount of stock or securities and other property or money received from the exchange, including any liability assumed upon the exchange, and any liability to which property received is subject. The amount of each kind of stock or security and other property (other liabilities assumed upon the exchange) received shall be set forth upon the basis of the fair market value thereof at the date of the exchange. Finally, the certificate of stocks to be issued by MAJA, which in all probability are original issues, are subject to the documentary stamp tax imposed by Section 175 of the Tax Code, as amended. After payment of the corresponding documentary stamp tax, the real property may be registered by the Register of Deeds concerned in the name of the transferee corporation, MAJA.. The transfer of the assets, including tangible and movable properties, by HERRAN and MARIKINA to MAJA pursuant to the merger will not be subject to the value-added tax. It is understood, however, that upon the subsequent sale or exchange of the assets or shares of stock acquired by the parties, the gain derived from such sale or exchange shall be subject to income tax and to value-added tax. The abovementioned transactions shall not be subject to the gift tax as there is no intention to donate on the part of any of the parties. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)