Whether, in the Determination of the Net Capital Gain Subject to the 10% and 20% Final Capital Gains Tax Prescribed in Section 24(e)(2)(a) of the Tax Code, as amended, Additional Contributions should be Added to the Original Acquisition Cost and the Total Amount Deducted from the Selling Price of the Shares

July 19, 1995 BIR RULING NO. 107-95 28 000-00 107-95 Flores & Ereso Law Offices Unit 104, Ground Floor First Midland Condominium Bldg. Gamboa Street, Legaspi Village Makati City Attention: Atty . Mariano C . Ereso, Jr . Gentlemen : This refers to your letter dated July 7, 1995 stating that your client, Consumer Brands Holdings, Inc. (CBHI) is a stockholder of and is the owner of 1,012,980 shares in Sterling Tobacco Corporation (STC); that said shares were acquired by CBHI at P173.32 per share or for a total sum of P175,569,693.60; that sometime in May, 1994 STC requested CBHI for an additional contribution of P125,000,000.00 to augment its working capital; CBHI contributed and paid the amount requested; that on the additional contribution, STC did not issue additional shares of stock to CBHI; that in the books of STC, the sum of P125,000,000.00 was recorded as "paid-in capital" while in the books of CBHI, the amount was recorded as "Additional Paid-in Capital"; that you are of the opinion that the said P125,000,000.00 given by CBHI is part of the cost of acquiring the 1,012,980 shares in STC; that consequently, in the determination of the net capital gain subject to the 10% and 20% final capital gains tax prescribed in Section 24(e)(2)(a) of the Tax Code, as amended, the said additional contribution should be added to the original acquisition cost and the total amount deducted from the selling price of the shares. In connection thereto, you are requesting confirmation of your opinion to the effect that in the determination of the net capital gain subject to the 10% and 20% final capital gains tax prescribed in Section 24(e)(2)(a) of the Tax Code, as amended, the said additional contribution should be added to the original acquisition cost and the total amount deducted from the selling price of the shares. In reply thereto, please be informed that "where a corporation requires additional funds for conducting its business and obtains such needed money through voluntary pro-rata payments by its shareholders, the amounts so received being credited to its surplus account or to a special capital account, will not be considered income, although there is no increase in the outstanding shares of stock of the corporation. The payments in such circumstances are in the nature of voluntary assessments upon, and represent an additional price paid for, in shares of stock held by the individual shareholders, and will be treated as an addition to and as a part of the operating capital of the company . [Section 56, Revenue Regulations No. 2] (Emphasis supplied) Thus, your opinion to the effect that in the determination of the net capital gain subject to the 10% and 20% final capital gains tax prescribed in Section 24(e)(2)(a) of the Tax Code, as amended, the said additional contribution should be added to the original acquisition cost and the total amount deducted from the selling price of the shares is hereby confirmed. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue