Exemption of a Merger or Consolidation Solely for the Shares of Stocks from Income Tax

May 16, 1989 BIR RULING NO. 106-89 34 (c) (2) 100 (a) 106-89 Gentlemen : This refers to your letter dated January 6, 1989 requesting confirmation of your opinion that the tax-free transfers indicated in Section 34(c)(2) of the Tax Code, as amended, are not subject to VAT. Pursuant to Section 34(c)(2) of the Tax Code, reading: "(c)(2) . . . No gain or loss shall be recognized if in pursuance of a merger or consolidation (a) a corporation which is a party to a merger or consolidation exchange property for stock in a corporation, (b) a shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of another corporation also a party to the merger or consolidation, or (c) a security holder of a corporation which is a party to the merger or consolidation exchanges his securities in such corporation solely for stock or securities in another corporation, a party to the merger or consolidation." "No gain or loss shall also be recognized if property is transferred to a corporation by person in exchange for stock in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four persons, gains control of said corporation; Provided, that stocks issued for services shall not be considered as issued in return of property." transfer of real or personal properties or securities by one corporation to another in pursuance of a merger or consolidation solely for the shares of stocks in the other corporation which is a party thereto shall be exempt from income tax. In reply, please be informed that based on the foregoing facts, the exchange of real property with shares of stock is not subject to VAT because real property does not come within the purview of VAT taxable goods pursuant to Section 2(p) of Revenue Regulations No. 5-87.For the same reason, the exchanges of personal property or securities in exchanges for shares of stocks in another corporation which is a party to the merger or consolidation shall be exempt from VAT. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner