BIR Ruling [DA-277-97]

August 15, 1997 BIR RULING [DA-277-97] EBECom Holdings, Inc. Westmont Bank Building #411 Q. Paredes Street Binondo, Manila Attention: Mr. Ramon P. Ereeta, Jr. Executive Vice-President & Chief Operating Officer Sir: This refers to your request for a clarification of BIR Ruling No. S34-198-97 dated July 22, 1997 regarding the tax-free exchange between EBECom Holdings, Inc. and Philippine Racing Club, Inc., Sta. Lucia Realty & Development, Inc., Central Vegetable Oil Manufacturing Company, Inc. and ACL Development Corporation relative to the following points, viz. : "1. In computing the Documentary Stamp Tax (DST) due on the deeds of transfer of real property under Sec. 196, what should be used as basis for determining the consideration of the value received? Is it One Peso (P1.00), the par value of the shares to be issued in exchange for the properties, or Thirty Five Centavos (P0.35), the average value of EBECom shares of stock traded at the Philippine Stock Exchange? It is quite clear that the stamp tax on the original issue of shares of stock under Sec. 175 is based on the par value but this may not be the case under Sec. 196. "2. In the deed of exchange with Sta. Lucia Realty & Development, Inc., the property being transferred to EBECom Holdings is the rights to 50% of Santa Lucia's share from the proceeds of the four (4) joint venture agreements to develop 510 hectares of real property in Cavite. However, no real properties will actually be transferred to EBECom. This means Sta. Lucia will be subscribing to 132,733,333 shares of EBECom and will use the proceeds of sales from its aforesaid development project as payment for the subscription. This being the case, we are of the opinion that it is not subject to the payment of DST under Sec. 196. However, the DST under Sec. 175 will still be due upon issuance of the shares of stock." In reply, please be informed that a conveyance or deed whereby land is assigned or transferred to the purchaser is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty. (Sec. 196, Tax Code, as amended) A stock in a corporation is a valuable consideration for transfer of real property (Section 177, Documentary Stamp Tax Regulations). Accordingly, if real properties are exchanged with stocks in a corporation, as in this case, the latter (shares of stock) is the consideration, the value of which shall be the basis of the documentary stamp tax due on the aforesaid Deed of Conveyance. (BIR Ruling No. 259-88) Accordingly, the par value of the shares to be issued in exchange for the properties should be used as basis in determining the consideration of the value received. On the other hand, we confirm your opinion that the deed of exchange with Sta. Lucia Realty & Development, Inc. is not subject to the payment of DST under Sec. 196 since no real properties will actually be transferred to EBECom but merely rights to the 50% of Santa Lucia's share from the proceeds of the four (4) joint venture agreements to develop 510 hectares of real property in Cavite. The imposition of the DST under Sec. 196 contemplates a situation where lands, tenements or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or and any other person or persons designated by such purchaser or purchasers, which, as facts will show is not obtaining in this case. aHADTC Furthermore, the certificates of shares of stock representing the consideration will be original issues, the documentary stamp tax due thereon of which shall be based on the par value of such certificates, i.e., P2.00 on each P200.00 or fractional part thereof (Sec. 175, Tax Code, as amended by R.A. 7660). (BIR Ruling No. 412-88 dated August 25, 1988) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV OIC-Assistant Commissioner (Legal Service)