BIR Ruling [DA-292-96]

July 30, 1996 BIR RULING [DA-292-96] Pangilinan Carmona & Santo 68 Kalayaan Ave., Diliman Quezon City Attention: Atty. Francis P.N. Pangilinan Gentlemen : This refers to your letter dated December 11, 1995 stating that Mr. V. Roy Santiago (Seller) is the owner of Seventy Five Thousand (75,000) shares of stock in Fintec Holdings, Inc. having bought them from Far East Bank and Trust Company, the trustee of the McCann-Erickson Multi-Employer Retirement Plan and the registered owner of shares of stock in Fintec Holdings, Inc.; that McCann-Erickson (Phils.), Inc. assigned its right to buy the aforesaid shares from Mr. V. Roy Santiago to Mr. Jose Venezuela (Buyer) in accordance with the McCann-Erickson (Phils.), Inc. Stock Purchase Plan; and that a Deed of Sale of Shares of Stock will be executed by and between Mr. V. Roy Santiago and Mr. Jose Venezuela. In connection therewith, you are requesting a ruling as to whether the aforesaid transaction is exempt from income tax. In reply thereto, please be informed that Section 21 (d) (1) of the Tax Code, as amended, provides, viz: "(d) Capital gains from sales of shares of stock. The provisions of Section 33 (b) notwithstanding, capital gains realized from sale, exchange or disposition of shares of stock in any domestic corporation shall be taxed as follows; "(1) Net capital gain as defined in Section 33 (a) (2) realized during each taxable year from the sale, exchange or other disposition of shares of stock not traded through a local stock exchange; caTESD "Not over P100,000 10% Over P100,000 20% In other words, if the Fintec shares of stock are unlisted, the capital gains realized by the seller, Mr. V. Roy Santiago from the sale of said shares shall be subject to a tax of 10% if the capital gain is not over P100,000 and 20% if the capital gain is over P100,000. The tax shall be paid by the seller. On the other hand, if the Fintec shares of stock are listed and traded through the local stock exchange, the sale shall be subject to a final tax of 1/2% of 1% based on the gross selling price or gross value in money of the Fintec shares of stock pursuant to Section 2 of Republic Act No. 7717 as implemented by Revenue Regulations No. 3-95. The tax shall likewise by paid by the seller. Moreover, the aforementioned Deed of Sale of Shares of Stock shall be subject to the documentary stamp tax under Section 176 of the Tax Code, as amended. (BIR Ruling No. 046-90 dated March 29, 1990 and BIR Ruling No. 163-90 dated August 27, 1990) Furthermore, one of the benefits and privileges to which a qualified employees retirement plan, like the McCann-Erickson Employees' Retirement Plan is entitled to is that the income of the Trust Fund from its investments are exempt from income tax pursuant to Section 53 (b) of the Tax Code, as amended. However, since in the aforementioned transaction, the seller is not the Trust Fund of the McCann-Erickson Employees' Retirement Plan but an employee of McCann Erickson (Phils.), Inc., any gain realized by the seller shall be subject to tax. DECSIT Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: (SGD.) ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service