BIR Ruling No. 061-62

March 12, 1962 BIR RULING NO. 061-62 Mr. Felix A Gulfin Director-Secretary Philippine National Plantation Company 67 San Luis, Pasay City S i r : In reply to your letter dated December 4, 1961, I have the honor to inform you that stock dividends issued by a corporation, as a general rule do not constitute taxable income to the shareholders. Where, however, the issuance of said stock dividends changes the equity or interest of the shareholders in the corporation or works a change in the corporate entity, such dividends are said to constitute taxable income to the shareholders. If the corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent that it represents a distribution of earnings or profits. (Sec. 83(b) Tax Code) The question as to which of the two procedures suggested by the Securities and Exchange Commission should be adopted by the corporation, is a matter that the corporation itself can properly decide, depending upon the fiscal position and management being followed by its officers. Very truly yours, BENEDICTO PADILLA Acting Commissioner of Internal Revenue