BIR Ruling [DA-542-98]

December 2, 1998 BIR RULING [DA-542-98] Benitez Parlade Africa Herrera Parlade & Panga Law Offices Suites 1502 & 1504, Security Bank Centre 6776 Ayala Avenue, Makati City Attention: Atty . Gwendolynn S . Santillan Gentlemen : This refers to your letter dated July 3, 1998 requesting, in behalf of your client, Hexagon Overseas Sdn. Berhad (Hexagon Overseas), for confirmation of your opinion that the transfer by Messrs. Tan Beng Wan and Ng Choong Hon of shares of stock issued in their names, in favor of Hexagon Overseas, the beneficial owners thereof, is exempt from both capital gains tax and the documentary stamp tax. cdt It is represented that Hexagon Tower Philippines, Inc. (Hexagon Tower) is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) on January 30, 1998; that 400,000 shares were issued in the name of Mr. Tan, and likewise 400,000 shares were issued in the name of Mr. Ng; that subsequent to the incorporation, Mr. Hildawa and Ms. Santillan assigned their qualifying shares to Messrs. Tan and Ng, bringing their total number to 400,001 shares each; that a Declaration of Trust was executed by Messrs. Tan and Ng to the effect that the said shares of stock were held in trust by them for the beneficial owners of the shares, Hexagon Overseas, a corporation organized and existing under the laws of Malaysia; that you are of the opinion that in the event that Messrs. Tan and Ng, trustees of the said shares of stock, will convey them to the beneficial owners, or their duly appointed trustees, no liability to capital gains tax will arise because there is no actual transfer of ownership of the shares and there is no valuable consideration involved; that the said trustees need not file a capital gains tax return for the said transaction; that you are likewise of the opinion that the above described transaction is exempt from the documentary stamp tax pursuant to Section 191 of Revenue Regulations No. 26, otherwise known as The Documentary Stamp Tax Regulations. In reply, please be informed that under Section 24(C) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or disposition of shares of stock in any domestic corporation shall be taxed as follows: (1) Net capital gains tax as defined in Section 39(A)(2) of the Tax Code, as amended, realized during each taxable year from the sale, exchange or other disposition of shares of stock not traded through a local stock exchange: Not over P100,000 5% On any amount in excess of P100,000 10% Such being the case, and considering that in the event that Messrs. Tan and Ng, as trustees of the said share of stock, convey the same in favor of the beneficial owners or their duly appointed trustees there would be no actual transfer of ownership over the aforementioned shares of stock as a result thereof, coupled with the fact that the conveyance is without any valuable consideration, this Office is hereby confirming your opinion that the said transaction is not subject to the capital gains tax imposed under Section 24(C) of the Tax Code, as amended. Moreover, your opinion that the deed conveying the aforesaid shares of stocks in favor of the beneficial owners or their duly appointed trustees is not subject to documentary stamp tax pursuant to Section 191 of Revenue Regulations No. 26, is likewise hereby confirmed. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the Tax Code, as amended by R. A. 7660. (BIR Ruling Nos. 039-97, UN-258-95, 123-93, 124-93, 125-93, 126-93, 127-93 128-93 and 129-93) cdti This ruling is being issued on the basis of the foregoing facts as represented. However, it upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV (Legal and Enforcement Group)