Cancellation of Certificates of Stocks

March 29, 1990 BIR RULING NO. 043-90 21 (d) (a) 000-00 043-90 S i r : This refers to your letter dated October 9, 1989 stating that the Davao Veterans Arrastre and Port Services, Inc. (DVAPSI) is a constituent corporation of Davao Integrated Port & Stevedoring Services Corporation (DIPSSCOR); that because of the shareholdings of DVAPSI in DIPSSCOR, the former has been able to elect three (3) directors to the Board of Directors of DIPSSCOR; that to qualify them to become directors of DIPSSCOR; a certificate of stock consisting of one share was issued to each of them; that for the next stockholders' annual meeting, and in anticipation thereof, it is likely that the Board of Directors of DVAPSI will change the incumbent three (3) directors representing the DVAPSI in the Board of Directors of DIPSSCOR; that the DVAPSI Board will therefore, pass a resolution that the incumbent directors be changed to another three naming three others; that further, the resolution will further direct that each of the certificate of stock in the names of the incumbent directors; be cancelled and transferred to other three (3) persons whose names will be mentioned in the resolution; that it is obvious that these certificates of stocks are issued merely to comply with the requirement that the persons whom the DVAPSI will elect to the Board of Directors of DIPSSCOR shall hold at least one share of stock; that there is no money consideration involved in the transfer of the Certificate of stocks. cdtech Based on the foregoing representations, you now request in effect a ruling as to whether or not you as the Corporate Secretary of DIPSSCOR together with the President of DIPSSCOR, can cancel the three (3) certificates of stocks of the incumbent directors and transfer them to the names of the three persons favored by DVAAAPSI to represent DVAPSI in the Board of Directors of DIPSSCOR without the certification required in Section 90 of the Tax Code. In the affirmative, whether it is the DIPSSCOR or the DVAPSI who will secure the said certification of the Commissioner. What are the papers or forms required to be able to secure the certification? In reply, please be informed that Section 90 of the Tax Code, as amended, refers to the prohibition against the transfer of shares unless the estate tax imposed under Title III, Chapter I of the same Code is paid. Hence, said provision finds no application in this case. Section 8 of Revenue Regulations No. 2-82 which provides, viz: "Sec. 8. Effect of Non-payment of Tax . No sale, exchange, transfer, or similar transaction intended to convey ownership of, or title to any share of stock shall be registered in the books of the corporation unless the receipt of payment of the tax herein imposed is filed with and recorded by the stock transfer agent or secretary of the corporation. It shall be the duty of the aforesaid persons to inform the Bureau of Internal Revenue in case of non-payment of tax. "Any stock transfer agent or secretary of the corporation who caused the registration in violation of the aforementioned requirement shall be punished by a fine of not more than P2,000.00 or by imprisonment for not more than six months, or both." does not, likewise, apply to the aforementioned transaction which, as represented, is not a taxable transaction since the same has no consideration. Accordingly, as corporate secretary, you can cancel the three (3) certificates of stocks of the incumbent directors and transfer them to the names of the three persons whom DVAPSI would want to be elected to represent the DVAPSI in the Board of Directors of DIPSSCOR without the certification required in Section 90 of the Tax Code, as amended, and the requirement under Section 8 of Revenue Regulations No. 2-82. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner