Taxability of Proceeds from Sale of Stocks and/or the Consolidation of Assets, Resulting from Corporate Merger

June 18, 1981 BIR RULING NO. 098-81 24-a 000-00 098-81 Minister Jose P. Dans, Jr. Ministry of Transportation and Communications Philcomsen Building, Ortigas Ave. Pasig, Metro Manila S i r : This refers to your letter dated February 19, 1981, requesting opinion on certain questions arising from the merger between the Philippine Long Distance Telephone Co. (PLDT) and Republic Telephone Company, Inc. (RETELCO). It appears that the merger of the abovementioned companies, both engaged in public service telephone operations, was finally concluded on February 14, 1981 with the signing of an Agreement on the sale of all assets and liabilities of RETELCO to PLDT. Pursuant to P.D. No. 1756, which seeks to facilitate the merger or consolidation of public utilities in telecommunications, "the proceeds from the sale of stocks and/or the consolidation of assets, resulting from any corporate merger or consolidation upon the approval of the President, shall be free from all taxes on capital gains and income tax, notwithstanding provisions of existing laws to the contrary." cdt In reply, I have the honor to inform you as follows: 1. Considering that RETELCO will sell its assets to PLDT, RETELCO will derive gains from such sale which, under Presidential Decree No. 1756 is exempt from income tax. In other words, RETELCO will be the beneficiary of what you term as "tax savings" because it will not pay the tax due on the gains derived by it. 2. You have represented that RETELCO will wind up its business and will distribute the proceeds of the sale of its assets to its stockholders. Under these circumstances, said stockholders would not be subject to income tax on liquidating dividends pursuant to Sec. 2 of Presidential Decree No. 1756. In other words, RETELCO stockholders will also be the beneficiaries of the so-called "tax savings" since they will not pay the tax due on the liquidating dividends to be received by them. 3. Since the RETELCO stockholders are not subject to income tax on the liquidating dividends to be distributed to them, this Office believes that your questions 3 and 4 regarding the year in which the so-called "tax savings" will be recognized need not to be answered. However, the income, if any, of RETELCO derived during the winding up of its corporate affairs until distribution in liquidation is subject to taxation. cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner