BIR Ruling [DA-465-06]

July 28, 2006 BIR RULING [DA-465-06] RR 16-2005; DA-040-98 Roberto P. Keyser & Associates Certified Public Accountants Blk. 85 Lot 13 Bernadez Street BF Resort Village, Las Pias City Attention: Mr. Roberto P. Keyser Gentlemen : This refers to your letter dated June 28, 2006 requesting on behalf of your client, Pinnacle Parts Co. Inc. (formerly, Pinnacle Parts Co.), a ruling whether or not the merchandise inventory and furnitures, fixtures and equipments owned by the said former partnership, which were assumed by your client corporation, are subject to value-added tax (VAT). cDECIA It appears that Pinnacle Parts Co. is a partnership duly registered with the Securities and Exchange Commission under SEC Registration No. AP096-00738 dated April 2, 1996; that the purposes for which the partnership was formed are to engage in, conduct, and carry on the business of buying, selling, distributing, marketing at wholesale and retail in so far as may be permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description; to enter into all kinds of contracts for export, import, purchase, acquisition, sale at wholesale or retail and other disposition for its own account as principal or in representative capacity as manufacturer's representative, merchandise broker, indentor, commission merchant, factors, or agents, upon consignment of all kinds of goods, wares, merchandise products whether natural or artificial; that sometime in May 2002, the said partnership was upgraded into a corporation named as Pinnacle Parts Co. Inc., whereby Melvin L. Ong and Michael L. Ong owned 90% of the said newly formed corporation; that the primary purpose of the corporation is to engage in the business of trading of goods such as construction and industrial equipment on wholesale/ retail basis and the secondary purpose is to engage in business such as leasing, maintenance and repairs particularly on heavy equipments such as: used construction machineries, bulldozers, power shovels, boom trucks, generator, earth-moving machines and other small items related to construction works; and that upon registration and operation of the corporation, it assumed the assets and liabilities of the former partnership (Pinnacle Parts Co.) and plans to convert the same in exchange for the shares of stock of the corporation. In reply, please be informed that the transfer of assets by Pinnacle Parts Co. to Pinnacle Parts Co. Inc. is not subject to the value-added tax (VAT) pursuant to Section 4.100-5(b)(1) of Revenue Regulations No. 7-95 as amended by Section 4.106-8.(b) of Revenue Regulations No. 16-2005, to wit: "(b) Not subject to output tax The VAT shall not apply to goods or properties existing as of the occurrence of the following: (1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. The goods or properties used in business or those comprising the stock-in-trade of the corporation, having a change in corporate control, will not be considered sold, bartered or exchanged despite the change in the ownership interest in said corporation; xxx xxx xxx." Such being the case, since the partnership was dissolved and a corporation was consequently incorporated, wherein the partners Melvin L. Ong and Michael L. Ong continued to have the controlling interest in the newly formed corporation, the merchandise inventory and furnitures, fixtures and equipment owned by the partnership and assumed by the newly formed corporation are not considered sold, bartered or exchanged. Accordingly, the said transfer of assets of Pinnacle Parts Co. to Pinnacle Parts Co. Inc. is considered a transaction "not subject to output tax" pursuant to Section 4.100-5(b)(1) of Revenue Regulations No. 7-95 as amended by Section 4.106-8.(b) of Revenue Regulations No. 16-2005. 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. ADcHES Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service