Liability for Documentary Stamp Tax on Original Issues of Active Group, Inc. Shares of Stock to be Received by the Turalba Family but which are Required to be Held in Escrow by the SEC

February 4, 1997 BIR RULING NO. 012-97 175 000-00 012-97 Siguion Reyna Montecillo and Ongsiako 8755 Paseo de Roxas, Philcom Bldg. Makati City Attention: Atty . Jose Lis C . Leagogo Gentlemen : This refers to your letter dated September 25, 1996 stating that in BIR Ruling No. S34-407-96 dated September 9, 1996, your client, Active Group, Inc. (AGI) disclosed that it originally increased its authorized capital stock to P5,700,000.00 which increase was approved by the Securities and Exchange Commission (SEC); that in connection with the said increase, Antonio A. Turalba, Ma. Cristina V. Turalba, Antonio V. Turalba, Jr., Antonella V. Turalba and Anjeanette V. Turalba (Turalba Family) exchanged their shares in Active Realty and Development Corporation (ARDC), Active Construction, Inc. (ACI) and Active Property Holdings Corporation (APHC) for 3,000,000,000 shares in AGI; that the SEC in accordance with its standard practice, required that the AGI shares of stock to be received by the Turalba Family should be held in escrow by the SEC and shall be released only after proof of the transfer of the registration of the shares being transferred in the name of the transferee corporation is submitted to the SEC within thirty (30) days from the date of the approval of the application; that in her letter dated June 7, 1996, the Director of the Corporate and Legal Department of the SEC informed AGI of certain guidelines which were adopted by SEC on December 24, 1994 to the effect that where the payment of the capital of a corporation consists of property other than land, the corresponding shares of stock to be issued thereon shall be held in escrow by the SEC and shall be released only after proof of the transfer of the registration thereon in the name of the transferee-corporation is submitted to the SEC within thirty (30) days from the date of the approval of the application extendible for justifiable reasons; that before the stock certificates in the names of the Turalba Family can actually be issued and deposited in escrow with the SEC, it was decided that in order that the net income of ARDC, ACI and APHC can be fully reflected in the audited financial statements of said companies and in the consolidated financial statements of AGI, the number of AGI shares to be issued to the Turalba Family be recomputed at book value of the ARDC, ACI and APHC shares without taking into consideration the appraisal increment of the properties of said companies; that as a consequence of said change in valuation, the number of AGI shares to be received by the Turalba Family in the exchange was reduced to 277,385,117 shares instead of 3,000,000,000 shares; that AGI's authorized capital stock was correspondingly reduced from P5,700,000,000.00 to P1,100,000,000.00; and that the reduction in authorized capital stock was approved by the SEC and the corresponding documentary stamp tax on the 277,385,117 AGI shares was accordingly paid. cdta Based on the foregoing representations, you now request for a ruling as to the liability for documentary stamp tax on the original issues of AGI shares of stock to be received by the Turalba Family but which are required to be held in escrow by the SEC. In reply thereto, please be informed that the delivery of the certificates of stocks, whether actual or constructive, to the stockholders is not essential for the documentary stamp tax to be imposed. What is taxed is the privilege of issuing shares of stock and, therefore, the tax accrues at the time the shares are issued . (Sec. 5, Revenue Regulations No. 9-94) Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face. The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder is considered issued because it is with value and therefore the documentary stamp tax must be paid as imposed by Section 175 of the Tax Code on original issue of certificate of stocks. (Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and the CTA, 145 SCRA 671-679, L-68230, Nov. 25, 1986) In this connection, under Section 64 of the Corporation Code, no certificate of stock shall be issued to a subscriber until the full amount of his subscription together with the interest and expense (in case of delinquent shares) if any, is due has been fully paid . However, as regards those certificates of stocks temporarily subject to a suspensive conditions, they shall be liable to the documentary stamp tax only when released from said conditions, for then and only then shall they truly acquire any practical value for their owners. (Philippine Consolidated Coconut Industries, Inc. vs. Collector of Internal Revenue 70 SCRA 22, 26-28, March 8, 1976 cited in CIR vs. Construction Resources of Asia, Inc. & CTA supra ) Such being the case, and since the AGI shares were required to be held in escrow by the SEC and shall be released only after proof of the transfer of the registration of the ARDC, ACI and APHC shares in the name of the transferee-corporation, AGI, is submitted to SEC within thirty (30) days from the date of the approval of the application extendible for justifiable reasons, the documentary stamp tax on the original issuance of the AGI shares shall accrue only when the shares shall be released from escrow by the SEC. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue