Corporations, Dy Buncio & Co. and Ong Long & Co., Liquidate and Distribute Assets to Stockholders Subject to Capital Gains Tax

January 20, 1982 BIR RULING NO. 015-82 83-00 019-80 015-82 Mrs. Lily C. Limpe P.O. Box 722 Manila M a d a m : This refers to your letter dated November 23, 1981 informing this Office that the corporations, Dy Buncio & Co. and Ong Long & Co., intend to liquidate and distribute its assets to its stockholders; and that the assets of the said corporations consists mainly of stocks held in certain corporations. Since the stockholders will receive assets of the corporations as liquidating dividends, you would like to be informed as to how the tax on said liquidating dividends shall be determined. In reply, I have the honor to inform you that the foregoing distributions by Dy Buncio & Co. and Ong Long & Co. of all its assets to its stockholders result in the acquisition by the latter of liquidating dividends wherein said stockholders shall realize capital gain or loss. This gain or loss consists of the difference between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of their respective shares in the said corporations. (Secs. 83 and 34, Tax Code; Secs. 253 and 256, Revenue Regulations No. 2). Since the distribution of liquidating dividends results in the sale or exchange of stocks held by the stockholders in Dy Buncio and Ong Long & Co., the gain, if any, derived by the stockholders shall be subject to the final capital gains tax imposed by Section 34(g) of the Tax Code, as amended by P.D. No. 1739. In other words, the gain derived should be taxed at the rate of 10%, provided, however, that if Dy Buncio and Ong Long are close corporations under the Corporation Code of the Philippines, such gain shall be taxed at 10%, if the gain is not over P50,000.00 and 20% for over P50,000.00. If the proceeds of the liquidating dividends are invested within six (6) months from the date the gains were realized, in new issues of the capital stock of a commercial bank existing as of September 17, 1980, the aforesaid gains derived by the stockholder shall be exempt from the capital gains tax. [Sec. 1(b), P.D. No. 1738] cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner