Tax Consequence of Transfer of Pepsi Shares by Trustee in Favor of Trustors Without Monetary Consideration

March 19, 1999 BIR RULING NO. 031-99 24 (C);176;188-115-94;125-97-031-99 Pepsi-Cola Products Philippines, Inc. KM 29, National Road Tunasan, Muntinlupa City Attention: Ms . Rosanna Lallana Burkley Authorized Representative Gentlemen : This refers to your letter dated 11 February 24, 1999 requesting for a ruling on the transaction as hereinbelow stated involving (a) Guoco Securities (Phils.), Inc. (hereinafter referred to as Trustee); (b) Hong Way Holdings Inc. (HWII) and Guoco Assets Philippines Inc. (GAPI) (hereinafter referred to as Trustors). LibLex It is represented that the abovenamed corporations are all corporations duly organized and existing under Philippine laws; and that "1. In 1998, the trustee subscribed to 400,000.00 shares of stock of Pepsi-Cola Products Philippines Inc. ("Pepsi") for and in behalf of HWHI and to 477,340,000 shares of the capital stock of Pepsi-Cola Products Philippines, Inc. ("Pepsi Shares") for and in behalf of GAPI, (hereinafter the "Pepsi Shares"); "2. In two (2) deeds of Declaration of Trust, dated 4 May 1998 and 26 June, the Trustee acknowledged that the Pepsi Shares registered in its name were purchased and paid for from money belonging to the Trustors. In the same documents, the Trustee also recognized the right and interest of the Trustors over the Pepsi Shares as beneficial owners thereof; and "3. On 14 December 1998, pursuant to the deeds of Declaration of Trust, the Trustors instructed the Trustee to cause the transfer of the Pepsi Shares in the name of said Trustors in the Stock and Transfer Book of Pepsi; "xxx xxx xxx". Based on the foregoing you are of the opinion that since the transfer of the Pepsi Shares by the Trustee in favor of the Trustors is merely a confirmation of title in favor of the beneficial owners and without monetary consideration, the same is not subject to either income tax, capital gains tax and documentary stamp tax and, hence there is no need to secure a Tax Clearance Certificate before the Corporate Secretary can effect the transfer of the shares in the books of the corporation. In reply, please be informed that under Section 24(C)of the Tax Code of 1997, a final tax at the rates of 5% and 10% shall be imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares if stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. In the instant case, there is no sale, barter or exchange of the 400,000,000 shares of stock of Pepsi-Cola and 477 340,000 shares of the capital stock of Pepsi-Cola, since HWHI and GAPI are the real owners of the shares of stock involved while Guoco Securities (Philips.) Inc. acted merely as Trustee. Accordingly, the transfer of the Pepsi Shares from the Trustee, Guoco Securities (Philips.), Inc. to the Trustors, HWHI and GAPI, the real owners therefor, without monetary consideration and by virtue of the Deeds of Trust respectively executed by HWHI and GAPI is not subject to the capital gains tax. In BIR Ruling DA-125-97, this Office held that the conveyance by the trustee in favor of the trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties. Moreover, the said Deeds are not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 115-94). This will, therefore, serve as authority for the Corporate Secretary to transfer the shares of stock of Pepsi-Cola Products Philippines, Inc. in the name of Hong Way Holdings Inc. and Guoco Assets Philippines Inc. 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. Very truly yours, BEETHOVEN L. RUALO Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group