Whether the Transactions Involving Sale of Shares of Stock are Exempt from Internal Revenue Taxes

April 17, 1995 BIR RULING NO. 072-95 24 (e) 000-00 072-95 124-A The Philippine National Red Cross National Headquarters Bonifacio Drive, Port Area Manila Attention: Mr . R . C . Espina General AFP (Ret . ) Chairman Gentlemen : This refers to your letter dated March 14, 1995 following up the request made in your behalf by the law offices of Villanueva Bernardo & Gabionza in its letter dated January 23, 1995 requesting for a confirmation of your opinion that the transactions involving sale of your shares of stock in RCS Realty (RCS) is exempt from internal revenue taxes. cdpr It appears that following the expiration of the Laurel-Langly Agreement which allowed ownership of lands in the Philippines by Americans E.R. Squibb and sons Philippine Corporation (Squibb) divested itself of its interest on a parcel of land located at Makati, Metro Manila, and donated 60% of its undivided interest in the land to the Philippine National Red Cross (PNRC), thus reducing Squibb's interest over said property to 40%; that thereafter, PNRC and Squibb exchanged their respective 60% and 40% interest for shares of stock of RCS Realty Corporations (RCS); that presently, PNRC holds 240,000 shares of RCS which represents 60% control over said corporation; and that PNRC and Squibb are presently contemplating to sell their respective shares of stocks in RCS to a Philippine National; and that citing Section 4 (b) of your current charter (P.D. 1643), you now invoke your tax exemption privilege to avoid paying any tax on the proposed sale of your shares of stock in RCS, considering that the proceeds thereof will be used in furtherance of your benevolent and humanitarian objectives. In reply, please be informed that pursuant to Section 4 (b) of P.D. No. 1643, your current charter, stating "Section 4. In furtherance of the purposes mentioned in the preceding paragraph, the Philippine National Red Cross shall: xxx xxx xxx "b. Be exempt from the payment of all duties, taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use, and in its benefits and fund raising drivers , all provisions of the law to the contrary notwithstanding." (Emphasis Supplied) Since the proposed sales of PNRC's shares of stock is part of your fund-raising drives the proceeds of which shall be used to finance your benevolent and humanitarian objectives, the conclusion is justified that the net capital gains to be realized from the sale of said shares of stock, if not listed or traded in the local stock exchange, shall be exempt from the capital gains tax prescribed under Section 24(e)(2) of the Tax Code. If listed or traded in the local stock exchange, the capital gains presumed to have been realized from the sale is likewise exempt from the stock transaction tax prescribed under R.A. No. 7717, which inserted Section 124-A of the Tax Code, imposing a tax on the Sale, Barter, or Exchange of Shares of Stock listed and Traded, or through Initial Public Offering. prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue