Exemption from Tax - Corporate Stockholders

January 29, 1990 BIR RULING NO. 007-90 21 (c) (2) 24 (e) (4) 028-89 007-90 Gentlemen : This refers to your letter dated November 2, 1989 requesting a ruling as to whether the property dividends consisting of shares of stock declared by your client, Great Pacific Timber and Development Corporation in favor of its stockholders of record holding common shares as of October 30, 1989 and payable on November 15, 1989 are subject to tax. It is represented that your client is a domestic corporation with an authorized capital of P1,500,000.00 preferred shares and P18,500,000.00 common shares of which P1,285,000.00 of the preferred stocks and P11,000,000.00 of the common stock are issued and outstanding; that as of June 30, 1989, its unappropriated retained earnings is P119,034,242.00; that the property dividends to be distributed are 1,182,243 shares of the common stock of Philippine Rock Products, Inc., a domestic corporation which is not listed and traded in any of the stock exchanges and which has a book value of P22.75 per share based on its audited financial statement as of December 31, 1988; and that the following are the present stockholders of your client: Name Nationality No. of Shares Held % of Ownership Common Preferred Common Preferred Par Value P1 Par Value P0.50 House of Invest- ments, Inc. Fil. 5,200,501 shares 47.28% Pan Malayan Management and Investment Corp. Fil. 1,823,500 shares 16.58% RP Land Develop- ment Corporation Fil. 2,650,000 shares 24.09% Pedro R. Changco, Jr. Fil. 525,996 shares 4.77% Emeterio Roa, Jr. Fil. 200,000 shares 1.82% Jesus Manalastas Fil. 200,000 shares 1.82% David Velasco Fil. 200,000 shares 1.82% Nicolas O. Katigbak Fil. 200,000 shares 1.82% Susanne Y. Santos Fil. 1 share Simeon Valdez Fil. 1 share Yvonne Yuchengco Fil. 1 share Marubeni Corp. Japanese 2,570,000 shares 100% TOTAL 11,000,000 shares 100% 2,570,000 shares 100% ======== ======== In reply thereto, I have the honor to inform you that dividends comprise any distribution whether in cash or other property, in the ordinary course of business even though extraordinary in amount, made by a domestic or resident foreign corporation to the stockholders out of its earnings or profits. Moreover, dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested are receivable by individual stockholders (Sections 250 and 251, Revenue Regulations No. 2). Accordingly, your client can distribute its property dividends consisting of shares of stock to its individual stockholders who are subject to tax at 0% effective January 1, 1989 (Sec. 21 (c)(2), Tax Code, as amended by Executive Order No. 37). Moreover, its corporate stockholders are not likewise subject to tax pursuant to Section 24 (e)(4) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner