BIR Ruling [DA-432-99]

July 27, 1999 BIR RULING [DA-432-99] 40 (C) (2) & (6) (c) 054-96 R. S. Bernaldo & Associates Unit 1810, Cityland Condominium 10 Tower I 6815 Ayala Avenue cor. H.V. dela Costa Ext. 1200 Makati City Attention: Atty . Rosario S. Bernaldo General Manager Gentlemen : This refers to your letter dated October 3, 1996 requesting on behalf of your client, Jaka Tagaytay Development Corporation (JTDC) , for a ruling that the adjustment of the historical cost of properties involved in a tax-free transfer under then Section 34(c)(2) and (6)(c) of the Tax Code, as amended [now Section 40(C)(2) and (6)(c) of the Tax Code of 1997] will not affect the tax-free nature of the transfer and will amend the cost of property acquisition for capital gains tax purposes to conform with the actual cost of property acquisition of the transferor. It is represented that last January 29, 1996, JTDC secured a ruling (BIR Ruling No. 054-96) from this Office that no gain or loss shall be recognized as a result of the exchange of the forty-six (46) parcels of land in the name of JTDC for One Billion Four Hundred Twenty Five Million Sixty Four Thousand Eight Hundred Pesos (1,425,064,800) shares of Jaka Tagaytay Holdings Corporation (JTHC) at One Peso (P1.00) per share which is equivalent to the appraised value of the properties of One Billion Four Hundred Twenty Five Million Sixty Four Thousand Eight Hundred Pesos (P1,425,064,800.00); that the above valuation was later adjusted downward to One Billion One Hundred Eighty Seven Million Five Hundred Fifty Four Thousand Pesos (P1,187,554,000.00) because of the insistence of the banking institutions who will finance the project to lower the appraised value; that it was ruled separately by the BIR that said downward adjustment of JTDC's transfer value did not affect the tax-free nature of the property transfer (BIR Ruling No. 231-96); the forty-six (46) parcels of land which have a total of 237.51 hectares were acquired per various deeds of conveyance by JTDC at an average price of Ninety Eight Pesos and Thirty Nine Centavos (P98.39) per sq.m. or a total of acquisition cost of Two Hundred Thirty Three Million Six Hundred Ninety Three Thousand Eight Hundred Sixty Pesos (P233,693,860.00); that this was the acquisition cost per the various deeds of conveyances that was contained in BIR Ruling No. 054-96; that it has been determined, however, that the actual average cost of acquisition per square meter (actual acquisition cost plus various incidental expenses) was One Hundred Thirty Four Pesos and Fifty Nine Centavos (P134.59) which is more than the P98.39 acquisition cost that was used as cost basis in BIR Ruling No. 054-96; that the added incidental costs (such as documentary stamp tax, transfer fees, registration fees, etc.) resulted in a total acquisition cost of Three Hundred Nineteen Million Six Hundred Seventy Six Thousand One Hundred Twenty Nine Pesos and Sixty Three Centavos (P319,676,129.63); and that this additional acquisition cost was validated by JTDC's Accounting Department and that you are now requesting that the adjustment of the historical cost of the properties involved in a tax-free transfer under then Section 34(c)(2) and (6)(c) of the Tax Code, as amended [now Section 40(C)(2) and (6)(c) of the Tax Code of 1997] will not affect the tax-free nature of the transfer and will amend the cost of property acquisition for capital gains tax purposes to conform with the actual cost of property acquisition of the transferor. AECacS In reply, please be informed that in tax-free transfer under then Section 34(c)(2) and (6)(c) of the Tax Code, as amended [now Section 40(C)(2) and (6)(c) of the Tax Code of 1997] adjustment in historical cost of the properties transferred to conform to the actual acquisition cost of said properties, will not affect the tax-free nature of the transaction but will merely amend such historical cost to conform with the actual acquisition cost. Hence, your opinion to this effect, is hereby confirmed. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)