BIR Ruling [DA-409-04]

July 28, 2004 BIR RULING [DA-409-04] Sec. 176; DA-411-2000 Development Bank of the Philippines Sen. Gil Puyat Avenue cor. Makati Avenue Makati City Attention: Mr. Renato A. Castillo Senior Vice President Gentlemen : This refers to your letter dated December 22, 2003 requesting for a ruling that the PAL shares which the Development Bank of the Philippines (DBP) will receive from PR Holdings, Inc. (PRHI) by way of liquidating dividends is exempt from the documentary stamp tax (DST). It is represented that under the provisions of the Stockholders' Agreement dated June, 1996 entered into by and among Ascot Holdings and Equities, Inc., Cube Factory Holdings, Inc., Sierra Holdings and Equities, Inc., Network Holdings and Equities, Inc., and Pol Holdings, Inc. (Party of the First Part); PNB, DBP, AFP-RSBS (Party of the Second Part) and GSIS, Land Bank and the Republic of the Philippines (Party of the Third Part), the Party of the First Part and the Party of the Second Part, the stockholders who both own 70.04% of the stockholdings of PRHI (which, in turn, owns 67% of PAL with the other 33% being owned by the Party of the Third Part) agreed that as a primary and essential consideration for the increase in the authorized capital stock of PAL, the PRHI would be dissolved and its PAL shares of stock will be distributed to its stockholders by way of liquidating dividends; and that pursuant to said Stockholders' Agreement, PRHI and DBP entered into a Deed of Assignment dated June 7, 1999 whereby DBP assigned all of its rights, title to and interests in its PRHI shares of stock to PRHI, and the latter, in turn, assigned all of its rights, title to and interests in and to its PAL shares by way of liquidating dividends, the PRHI shares surrendered or transferred being corresponding to or to the extent of the 49,696,615 PAL shares distributed by way of liquidating dividends. In reply, please be informed that the transfer by the liquidating corporation of its remaining assets to its stockholders is not considered a sale of these assets. Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation (cited in BIR Ruling No. DA-131-2004 dated March 26, 2004 ). Accordingly, the assignment of the PAL shares by PRHI to DBP as part of its liquidating dividend is not subject to tax since there is no sale, barter or exchange of the DBP shares in PAL. The receipt by DBP of the PRHI shares in PAL is a consequence of the dissolution of PRHI. However, the transfer of the PAL shares from PRHI to DBP is subject to the documentary stamp tax imposed under then Section 176 of the Tax Code of 1997 at the rate of P1.50 for every P200.00, or fractional part thereof, of the par value of the shares transferred considering that the Deed of Assignment transferring the PAL shares was executed on June 7, 1999. Upon presentment of proof of payment of the documentary stamp tax, PAL's corporate secretary can register the transfer of the aforestated shares in its stock and transfer book and cancel and issue new stock certificates in the name of the transferee ( BIR Ruling No. DA-411-2000 dated November 28, 2000 ). 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 as null and void. ICTacD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group