BIR Ruling [DA-326-05]

July 22, 2005 BIR RULING [DA-326-05] 176; #096-96; DA-216-2004 ML&H Corporation Manuela Complex II, Philamlife Subdivision Pamplona, Las Pias City Attention: Mr. Jerry M. Navarette President Gentlemen : This refers to your letter dated June 25, 2005 requesting for a ruling that the issuance of new shares of stocks, to replace the previously issued and outstanding shares of stocks of ML&H Corporation ("Corporation"), pursuant to a decrease in its capital stock is exempt from the payment of documentary stamp tax. It is represented that ML&H CORPORATION is a domestic corporation duly registered with the Securities and Exchange Commission as a financial holding a company; that on May 9, 2005, the majority of the Board of Directors of the Corporation, with the approval of its stockholders representing at least two-thirds (2/3) of the outstanding and voting capital, stock of the Corporation, has approved the Decrease in the Authorized Capital Stock of the Corporation from Four Billion Pesos (Php4,000,000,000.00) divided into Forty Million (40,000,000) common shares with a par value of One Hundred Pesos (Php100.00) per share to Two Billion Pesos (Php2,000,000,000.00) divided into Forty Million (40,000,000) common shares with a par value of Fifty Pesos (Php50.00) per share; that said decrease in capital stock was duly approved by the SEC on June 24, 2005; and that the Corporation is being required by the SEC to issue new shares of stocks, reflecting the new par value of Fifty Pesos (Php50.00) per share, in replacement of the previously issued shares whose par value is at One Hundred (Php100.00) per share. 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 "xxx xxx xxx 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. 7660." ISTECA The same rule was reiterated in BIR Ruling No. DA-216-2004 dated April 21, 2004 which provides, to wit: "In the instant case, the surrender of the certificates of stock by the stockholders of ML&H 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 the documentary stamp tax prescribed in Section 176 of the Tax Code, as amended." Accordingly; the issuance of new shares of stocks, to replace the previously issued and outstanding shares of stocks of ML&H Corporation pursuant to a decrease in its capital stock is exempt from the payment of documentary stamp tax. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service