30-day Period for Filing of Short Period Return by Absorbed Corporation in a Merger Reckoned from SEC's Approval

February 19, 2002 BIR RULING NO. 010-02 000-00 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. J. A. Osana Gentlemen : This refers to your letter dated October 24, 2001, on behalf of your client, Allstate Life Insurance Company of the Philippines (Allstate), appealing from the ruling issued by the Director of Revenue Region No. 6, Dr. Ruperto P. Somera, dated October 15, 2001 relative to the filing of the Short Period Return of Allstate. DTAcIa It is represented that on August 31, 2001, the respective Board of Directors and stockholders of Pru Life Insurance Corporation of UK (Pru Life UK) and Allstate approved the Plan of Merger and the Articles of Merger between Pru Life UK and Allstate; that Pru Life UK is a Large Taxpayer registered with the Large Taxpayers Service; that Allstate was originally registered with Revenue District Office No. 47 but now falls under the jurisdiction of RDO 34; that under the Plan of Merger, Pru Life UK shall be the surviving corporation and Allstate shall be the absorbed corporation; that all the assets and liabilities of Allstate, as shown in its Audited Financial Statements as of May 31, 2001, shall be conveyed, assigned, and transferred to Pru Life UK in consideration for shares of stock of Pru Life UK; that Allstate shall confirm the conveyance of all its assets to Pru Life UK as of the date of the Securities and Exchange Commission's approval of the merger; that the Effective Date of Merger indicated in the Plan of Merger is September 1, 2001, but this is subject to the SEC's approval of the Articles of Merger and issuance of the Certificate of Filing of the Articles of Merger, and to the Bureau of Internal Revenue's issuance of a ruling that the merger complies with Section 40 (C) (2) of the Tax Code; that on September 26, 2001, the merger documents were filed with the SEC on behalf of Pru life UK and Allstate; that on the same date, a request for ruling was also filed with the Law Division of the BIR National Office that the merger of Pru Life UK and Allstate qualifies as a tax-free merger under Section 40 (C) (2) of the National Internal Revenue Code of 1997 (NIRC); that on September 27, 2001, a request was filed with RDO 34 that Allstate be required to file a short period return only after the SEC has finally approved the merger and within a period of at least 90 days from the date of the SEC's approval of the merger; that the request was made because Allstate was at that time still in the process of engaging its external auditor to conduct an audit and prepare the Audited Financial Statements that would be the basis for the Short Period Return and Allstate was still compiling the records and documents that would be required by its external auditor; that RDO 34 referred the request to the Regional Director for resolution and the latter denied the request for lack of legal basis, holding that: ". . . under Section 52 (C) of the Tax Code of 1997, the dissolving or reorganizing corporation shall, prior to the issuance by the Securities and Exchange Commission of the Certificate of Dissolution or Reorganization, secure a certificate of Tax Clearance from this office, which certificate shall be submitted to the Securities and Exchange Commission. Hence it is imperative that a preliminary short period return be filed/submitted to this office within thirty (30) days after the approval of the plan of merger to enable us to issue a certificate of tax clearance which will be the basis of SEC' s approval of the subject merger." that on October 22, 2001, the SEC finally approved the merger of Pru Life UK and Allstate. In connection therewith, you now appeal from the ruling of the Regional Director and request a confirmatory opinion that the 30-day period for the filing of the Short Period Return of Allstate, as the absorbed corporation in the merger, should be reckoned from the SEC's approval of the merger, not from the approval by the Board of Directors and stockholders of the Plan of Merger. You further request that Allstate be allowed an extension of 60 days from the lapse of the initial 30 days from the SEC's approval of the merger within which to file the short period return. In reply, please be informed that Section 52 (C) of the Tax Code provides: Return of Corporation Contemplating Dissolution or Reorganization . Every corporation shall, within thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution, or for the liquidation of the whole or any part of its capital stock, including a corporation which has been notified of possible involuntary dissolution by the Securities and Exchange Commission, or for its reorganization, render a correct return to the Commissioner, verified under oath, setting forth the terms of such resolution or plan and such other information as the Secretary of Finance, upon recommendation of the Commissioner, shall, by rules and regulations, prescribe. The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and Exchange Commission of the Certificate of Dissolution or Reorganization, as may be defined by rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. Prior to the amendment of the Tax Code by Republic Act No. 8424 (Tax Reform Act of 1997), the filing of short period return was expressly required for corporations contemplating dissolution but not for corporations contemplating reorganization such as merger. Nevertheless, the requirement for the filing of the short period return has been applied to absorbed corporations in cases of merger. Thus, the Supreme Court decided that the short period return of an absorbed corporation should be filed within 30 days after the cessation of its business or thirty days after the approval of the Articles of Merger. [ Bank of the Philippine Islands vs. Commissioner of Internal Revenue , G.R. No. 144653, August 28, 2001.] The Supreme Court affirmed the decision of the Court of Tax Appeals that based its pronouncement on Sec. 78 of the then Tax Code and Sec. 244 of Revenue Regulations No. 2, viz: Sec. 78. Return of corporation contemplating dissolution. Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation or for the liquidation of the whole or of any part of its capital stock, render a correct return to the Commissioner of Internal Revenue, verified under oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall by regulations, prescribe. Sec. 244. Return of corporation contemplating dissolution or retiring from business . All corporations, partnership, joint accounts and associations, contemplating dissolution, shall within 30 days after the approval of such resolution authorizing their dissolution, and within the same period after their retirement from business, file their income tax return covering the profit earned or business done by them from the beginning of the year up to the date of such dissolution or retirement and pay the corresponding income tax due thereon upon demand by the Commissioner of Internal Revenue. . . Although under the foregoing provisions, the reckoning point for the 30-day period is the "adoption by the corporation of a resolution or plan" for the dissolution, the Supreme Court still reckoned the 30-day period from the SEC's approval of the merger. This is because the SEC's approval of the merger is the operative act that gives legal effect to the merger and results to the cessation of the separate juridical personality of absorbed corporation. Therefore, this Office hereby rules that in a merger of consolidation, the phrase "within thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution" in Section 52 (C) of the Tax Code of 1997 refers to the 30-day period from the SEC's approval of the merger, this being the interpretation of the provision by the Supreme Court in the above-mentioned case. As regards the request for an additional time for the Allstate to file the Short Period Return, that is, within 60 days from the date of the SEC's approval of the merger, having found your reasons to be meritorious, your request is hereby granted. 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. cHATSI Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue