Whether the Sales of the Government-Owned Shares in Philippine Airlines, Inc. is Not Subject to the Capital Gains Tax

March 24, 1992 BIR RULING NO. 102-92 24 (e) (2) 045-92 102-92 Hon. Jesus P. Estanislao Secretary of Finance Manila Attention: Ms . Juanita D . Amatong Undersecretary of Finance S i r : This refers to your letter dated March 19, 1992 requesting confirmation of your opinion to the effect that the sales of the Government-owned shares in Philippine Airlines, Inc. (PAL) is not subject to the capital gains tax. It is represented that PAL is one of the Government Owned and Controlled Corporation (GUCC) approved by President Aquino for privatization; that in line with the Government privatization policy under Proclamation No. 50 dated December 8, 1986 and pursuant to Administrative Order No. 242 dated October 21, 1991, the Government has assumed certain outstanding obligations of PAL and in exchange therefor, the Government received PAL shares representing 80% of the company's total sale of the 67% Government-owned shares in PAL; that the sale was awarded to AB Capital and Investment Corporation and the Philippine Bank of Commerce consortium which submitted the highest bid equivalent to P9.78 billion; and that the said consortium has organized PR Holdings, Inc. a Philippine corporation, for the purpose of consummating said sale. Administrative Order No. 242 issued by President Corazon C. Aquino on October 21, 1991 indicates that the aforesaid sale is in accordance with Sections 22 and 23 of Proclamation No. 50. In reply, I have the honor to inform you that since the sale by the Government of 67% of its shares of stock in PAL is merely part of the process of, or incidental to the transfer of its assets contemplated in Sections 22(1) and (2) and 23 of Proclamation No. 50, the same is exempt from all internal revenue taxes pursuant to Section 35 of Proclamation No. 50 which states: "Sec. 35. Exemption from Taxes, Fees, and Other Charges . The provisions of any law to the contrary notwithstanding, the Trust as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and/or from the Trust to a private acquisitor or buyer imposed by the National Government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps, registration fees and the like: Provided, that in case the said government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, fees, charges, imposts, and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Trust of the corporations held by the Trust. "The sale or transfer of such corporations or assets shall not be enjoined or hindered by the existence of any liens by way of taxes, charges or other assessments in favor of the government at the time of sale or transfer: Provided, that the proceeds from such sale or transfer shall be subject to a tax lien and first be applied to satisfy such obligations secured by said liens." aisadc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue