BIR Ruling [DA-402-04]

July 22, 2004 BIR RULING [DA-402-04] 40 (C) (6) (b) IPVG Corporation 25th Floor Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Catherine J. Uy Director Gentlemen : This refers to your letter dated February 18, 2004 stating that in BIR Ruling No. S-40-003-2004 dated February 12, 2004, relative to the statutory-merger of MBf, Inc. and IPVG Corporation, this Office requires the surviving corporation to cause the annotation at the back of the newly issued Certificates of Stock, the original or historical cost of acquisition of the cancelled shares of stock, and the fact that no gain or loss was recognized as a result of the merger. You now then seek a clarification on the cost basis that is being required to be annotated at the back of the newly issued Certificates of Stock, i. e. , the original or historical cost of P1.00 and P2.00 per share at which the MBf Group acquired their shares, which are transferred to the stockholders of IPVG Corporation as a result of the merger, or the substituted bases as allocated in page 6 of the aforesaid BIR Ruling. Furthermore, you likewise seek for an explanation whether the above-stated annotation is required to be made in all the Certificates of Stock covering both the Primary Shares issued to the stockholders of IPVG Corporation, as well as the Secondary Shares transferred. After a careful study of the said Ruling, this Office is of the opinion that the bases of the Primary Shares to be received by the stockholders of IPVG Corporation pursuant to the merger should be the same as the bases of the assets transferred, decreased by the liabilities to be assumed by MBf, Inc. in the transaction, thus: No. of shares Assets Original Liabilities Substituted Substituted allocated Basis Basis Basis Per Share 738,544 Cash P1,034,620.00 P1,034,620.00 P1.02 5,533,471 Other Assets 7,751,792.00 2,377,435.00 5,374,357.00 P1.02 6,272,015 P8,786,412.00 P2,377,435.00 P6,408,977.00 Such being the case, the annotation requirement as stated in page 9 of the said BIR Ruling, should now be read as follows: TSaEcH "Finally, the surviving corporation shall cause the annotation at the back of the newly issued Certificates of Stock, the substituted bases of the Primary Shares of stock transferred, and the fact that no gain or loss was recognized as a result of the merger. It is further required that within ninety (90) days from receipt of this ruling, the parties to the transaction must submit to the Law Division, Bureau of Internal Revenue, a certified copy of duly annotated Certificates of Stock in respect of the shares of stocks of transferee corporation. (emphasis provided) It is to be noted that the transfer by IPVG Corporation of its 83,300 shares of Next Sequel Interactive, Inc. and 100,000 shares of AGV Asia Corporation is not subject to capital gains tax under Section 27(D)(2) of the 1997 Tax Code, such conveyance of shares is considered part and parcel of the aforestated merger. However, the same is not exempt from the payment of documentary stamp tax under Section 176 of the Tax Code of 1997. This modifies BIR Ruling No. S-40-003-2004 dated February 12, 2004 insofar as the above-mentioned issues are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service