Suarez & Narvasa Law Firm

July 12, 2007 BIR RULING [DA-375-07] Suarez & Narvasa Law Firm 3/F CSJ Bldg., 105 Aguirre Street Legaspi Village, Makati City Attention: Reynaldo R. Suarez, et al. Counsels Gentlemen : This refers to your letter dated June 5, 2007 in behalf of your clients, Fil-Estate Properties, Inc. (FEPI, for short), and Fil-Estate Land, Inc. (FELI, for short) , requesting a confirmatory ruling of your opinion that the transfer of the real property ( pro-indiviso interest) and development rights by FEPI and FELI, in favor of Twin Lakes , solely in exchange for shares of stocks of the latter will neither result in a taxable gain or profit pursuant to Section 40 (C) (2) (c) of the Tax Code of 1997. It is represented that your clients, FEPI and FELI are presently among the co-owners of a certain parcel of land situated at Laurel Town, Province of Batangas; that both likewise own development rights over the above-mentioned land; that meanwhile, Twin Lakes, another corporation, will be set-up and/or be incorporated as a domestic corporation with an Authorized Capital Stock consisting of common and preferred shares; that Twin Lakes will likewise engaged in Realty; that once Twin Lakes is set up and/or incorporated, FELI and FEPI will subscribe to substantially 100% of the former's common and preferred shares; that in exchange for the shares of stocks, FEPI and FELI shall assign, transfer and convey all their pro-indiviso interests in and development rights to the land to Twin Lakes; that the purpose of the transfer of the pro-indiviso interests and development rights of FEPI and FELI to Twin Lakes is to include said interest and rights in the developable land or property inventory of Twin Lakes; and that after the foregoing subscriptions of FEPI and FELI, they will become the majority shareholders of Twin Lakes, thereby gaining control of Twin Lakes. cSIHCA In reply, please be informed that this kind of transaction you are contemplating is a tax-free transaction under Section 40 (C) (2) (c) of the Tax Code of 1997, quoted hereunder as follows: Section 40 (C) (2) (c) "No gain or loss shall be recognized if property transferred to a corporation by a person in exchange for stocks or units of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons gain control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return of property." However, in order to be exempt from taxes, your clients, FEPI and FELI shall have control over the proposed corporation by subscribing to the latter's capital stock of at least 51%. In which case FEPI and FELI will gain control of the corporation by owning majority of the stocks of the proposed Twin Lakes. In order to avail of the tax exemption under Section 40 (C) (2) (c) of the same Code, you should file with this Office the required documents in accordance with Revenue Regulations No. 18-2001 and Revenue Memorandum Order No. 32-2001 enumerated hereunder as follows: 1. Covering letter with statement of facts; 2. Application and Joint Certification (BIR Form No. 1927); 3. Proof of Payment of the Processing Fee (BIR Form No. 0605); 4. Original Copy of the Deed of Transfer/Assignment/Exchange; 5. Certified true copy of the Articles of Incorporation duly registered with SEC of the transferee corporation; 6. Certificate true of the Certificate of Increase of the transferee corporation from the SEC; 7. Certified true copy of the Transfer Certificate/s of Title; EHTCAa 8. Certified true copy (latest) of the corresponding Tax Declaration; 9. Sworn Certification as to original or historical cost of acquisition/adjusted cost basis of the land separate from the improvements/building transferred duly attested by the owners/transferors; 10. Certified true copy of the fair market value or zonal value of the properties involved in the exchange; 11. Certification by the secretary of transferee corporation as to the stockholdings of transferee before and after assignment of property/ies; 12. Latest Audited Financial Statements of the transferors and transferee (if the transferor is a corporation only); 13. Special Power of Attorney executed by a transferor and/or transferee, if the application is being submitted by a taxpayer's authorized representative, other than the taxpayer himself; 14. Original copy of the Documentary Stamp Tax Declarations/Return (BIR Form No. 2000); 15. Other pertinent documents. and pay the processing fee at any Authorized Agent Bank (AAB) located in the place of the transferors per schedule of fees as follows: 1. 1st 10 properties - P5,000.00 2. in excess of 10 properties - P100.00 each Please be guided accordingly. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service