Tax Liability of General Electric Philippines, Inc.

February 1, 1989 BIR RULING NO. 010-89 25 (b) (5) (B) 324-87 010-89 Gentlemen : This refers to your letter dated December 28, 1988 stating that General Electric Philippines, Inc., (GEP) is a domestic corporation organized and existing under Philippine laws; that it is a wholly-owned subsidiary of General Electric Company (GEC), a U.S. corporation that is not licensed to engage and is not actually engaged in trade or business in the Philippines; that GEP has investments in the shares of stock of Philippine Electric Manufacturing Company (PEMCO), a domestic corporation which investment GEP originally acquired for a total cost P14,553,436.28 but which now has a book value of P41,575,216.00 as of December 31, 1987; that GEP has unappropriated earnings amounting to P44,578,938 as of December 31, 1987; and that GEP plans to declare its entire shareholdings in PEMCO as property dividend in favor of GEC, its U.S. parent company. cdtech In connection therewith, you now request confirmation of your opinion as follows: (1) That the property dividend shall be subject to 15% tax to be withheld by GEP; (2) That the basis of the 15% tax thereon shall be the book value of the shares nearest the valuation date; and (3) That GEP is not subject to income tax or capital gains tax on the excess of the book value/fair market value over its acquisition cost of the PEMCO shares that will be declared and transferred to GEC as property dividend. In reply thereto, I have the honor to inform you as follows: (1) Since under the present provisions of the U.S. Federal T ax Co de, the amount of tax deemed paid on such dividends, and accordingly, to be credited against U.S. tax on said dividends, meets the 20% requirement of Section 25(b) (5) (B) of the Tax Code, as amended by Executive Order No. 37, your opinion that the dividends which GEP will remit to GEC domiciled in U.S. are subject to withholding tax at the rate of 15% is hereby confirmed. (BIR Ruling No. 25(b)(5)(B)-223-82-324-87 dated October 20, 1987); (2) Pursuant to Section 6(a)(3) of Revenue Regulations No. 2-82 in the case of sale, transfer or exchange of shares not listed in the stock exchange, the unlisted shares shall be valued at their book value nearest the valuation date. The book value of the unlisted shares of stocks shall be prima facie considered as their fair market value. Accordingly, your opinion that since the PEMCO shares which GEP will declare as property dividend are not listed and traded in the stock exchange, the book value thereof nearest the valuation date shall be considered as their fair market value for purposes of the 15% withholding tax is likewise confirmed; (3) GEP is not subject to income tax or capital gains tax when it declares and transfers its PEMCO shares as property dividend in favor of GEC, its US parent company. aisadc Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner