Oregon Land, Inc.

August 11, 2009 BIR RULING [DA-(C-173) 452-09] 73 (A); Regs. No. 26; RR 6-2008; 059-99; 092-99; 028-2002; 270-1991; 021-89; DA-164-2004 Oregon Land, Inc. 25 8th St., New Manila Quezon City Attention: Mr. Jose C. Gasmen Corporate Secretary Gentlemen : This refers to your undated letter requesting for a ruling on Oregon Land, Inc.'s (OLI) distribution of its corporate assets as liquidating dividend to its stockholder, particularly on its exemption from creditable withholding tax and documentary stamp taxes. Documents submitted show that OLI is a domestic corporation registered with the Securities and Exchange Commission (SEC) under SEC Reg. No. A200018753 dated December 20, 2000. OLI had ceased business operations since January 2, 2006 due to serious business losses and on August 2, 2006, the SEC revoked its Certificate of Registration. The Board of Directors of OLI on its Meeting held on June 6, 2008 had resolved that OLI's rights and interests, including the right of redemption over their properties covered by Transfer Certificates of Title (TCT) Nos. N-222430, N-222431 and N-222432 and any improvements existing thereon will be assigned, transferred and conveyed in favor of Marilene P. Jacinto as liquidating dividend. It was likewise agreed upon that all debts, obligations and liabilities of OLI have been paid or discharged, and its liquidation will not affect the rights of any creditors whatsoever. In reply, please be informed as follows: The transfer by the liquidating corporation of its remaining assets to its stockholders in exchange for the surrender and cancellation of the shares is not a sale, hence the same is exempt from corporate income taxes, creditable withholding and documentary stamp taxes under Revenue Regulations (RR) No. 1-90, as amended by RR 6-2001 and further amended by RR 17-2003. (BIR Ruling Nos. 059 dated April 17, 1990 and 092-99 dated July 8, 1999) Thus, a liquidating corporation does not realize gain or loss in partial or complete liquidation. ( W.P. Fox & Sons, Inc., Petitioner vs. Commissioner of Internal Revenue, Respondent, 15 BTA 115; Jordan Petroleum Company, 13AFTR 2d 1692 (227 F. Supp. 174); JTS Brown & Son Company vs. Commissioner of Internal Revenue , 10TC 840) Conversely, neither is a liquidating corporation subject to tax on its receipt of the shares surrendered by its shareholders pursuant to a complete or partial redemption. (BIR Ruling No. 171-92 dated May 28, 1992) IEHScT In addition, Sec. 189 of Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations, provides: "Section 189. Conveyances by corporation to owner of all the capital. A conveyance of real estate by a corporation without valuable consideration to an owner of all its capital stock in consequence of its dissolution is not subject to tax." Under the above-quoted Section 189 of Regulations No. 26, a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to the majority owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution in liquidation of the assets of a corporation to its stockholders is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 059-90 dated April 17, 1990). Since the conveyance by OLI of its real properties as liquidating dividends to its stockholders is without valuable consideration and was not made in the course of trade or business, the same is not subject to the 12% VAT under Section 106 (A) of the Tax Code of 1997. Moreover, Sec. 8 of RR No. 6-2008 is quoted as follows: "SEC. 8. Taxation of Surrender of Shares by the Investor Upon Dissolution of the Corporation and Liquidation of Assets and Liabilities of said Corporation. Upon surrender by the investor of the shares in exchange for cash and property distributed by the issuing corporation upon its dissolution and liquidation of all assets and liabilities, the investor shall recognize either capital gain or capital loss upon such surrender of shares computed by comparing the cash and fair market value of property received against the cost of the investment in shares. The difference between the sum of the cash and the fair market value of property received and the cost of the investment in shares shall represent the capital gain or capital loss from the investment, whichever is applicable. If the investor is an individual, the rule on holding period shall apply and the percentage of taxable capital gain or deductible capital loss shall depend on the number of months or years the shares are held by the investor. Section 39 of the Tax Code, as amended, shall herein apply in all possible situations. SaHTCE The capital gain or loss derived therefrom shall be subject to the regular income tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate income tax rate, in case of corporations." However, the capital gain so realized shall be subject to income tax at the rates prescribed under Section 27 of the Tax Code of 1997. Hence, only 50% of the aforementioned capital gain is reportable for income tax purposes if the shares were held by the individual stockholders for more than 12 months and 100% of the capital gain if the shares were held for not more than 12 months pursuant to Section 39 of the same Tax Code. (BIR Ruling No. 028-2002 and 270-1991) Likewise, the sale by the stockholders of OLI of the distributed asset received by them as return of investment immediately after title thereto is transferred to their names shall be subject to the final capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997. (BIR Ruling No. 021-89 dated February 1991) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. EaCSTc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service