Tax Consequence on the Sale of Stockholdings for Cash

February 1, 1979 BIR RULING NO. 001-79 Stock transaction This refers to your letter dated November 22, 1978 requesting a ruling as to the tax consequence of the following proposed transactions: "The existing individual stockholders (Sellers) of a domestic corporation engaged in the manufacture of confectionaries (Company A) proposes to sell their stockholdings for a cash at fair market value to another domestic corporation, also a manufacturer (Company B). The Sellers acquired their shares of stock in Company A after November 5, 1970 and not through any tax-free exchange under Section 35 (o) (2) of the Tax Code or under any other law. The Sellers will pay the of 1% stock transactions tax based on the gross selling price thereof. After the sale, Company A will be wholly-owned by Company B. Immediately thereafter, Company B plans to completely liquidate Company A and exchange its entire stockholdings in Company A for all the assets of Company A. The assets which will be distributed by Company A to Company B (net of liabilities to creditors) have not been acquired by Company A in any tax-free exchange under the Tax Code or any other law. Likewise, for purposes of determining the market value of the assets to be distributed. Company B will engage the services of an independent appraiser. In the end, the confectionary business of Company A will be operated as a division of Company B." In your letter dated January 15, 1979, you stated as follows: "1. We wish to confirm that the stockholders of Companies A and B are not related whatsoever. Company A's stockholders are entirely different from Company B's stockholders; We also wish to inform you that the Company A (seller) referred to in our request is Goya Products, Inc. Company B (Buyer) is not yet known. As we have informed you, Company A, the seller, would want first to clarify its tax position before it looks for and firms up anything with any prospective buyer, in view of which the identity of Company B and its stockholders are not yet known at the present time." In reply thereto, I have the honor to inform you that since the shares of stock sold by the stockholders of Goya Products, Inc. to Company B were acquired by them in the former corporation after November 5, 1970' the sale of such shares to Company B is subject only to the of 1% stock transaction tax on the subsequent exchange of the entire Goya shares for the remaining Goya net assets in complete liquidation of Goya Products, Inc. The basis of such Goya Products, Inc. will be the fair market value thereof at the time of distribution to Company B.