BIR Ruling No. 119-84

July 12, 1984 BIR RULING NO. 119-84 83-a-000-00-119-84 Gentlemen : This refers to your letters dated November 12 and December 13, 1982 requesting a ruling on the tax consequence of the transactions described as follows: It is represented that under a Purchase Agreement entered into on April 27, 1982 by and between Pilipinas Shell Petroleum Corporation (Pilipinas for short) as the purchaser, and all of the shareholders of Basic-Landoil Energy Corporation (BLECOR), namely: Basic Petroleum and Minerals, Inc. (Basic Petroleum), Landoil Resources Corporation (Landoil), Samuel O. Abellera (Abellera) and Arab Pacific Marketing, Ltd. (Arab Pacific) as the sellers, Pilipinas with the main objective of taking over BLECOR's assets, will purchase the entire 100% of the subscribed, issued and/or outstanding shareholdings in BLECOR equivalent to 614,740 shares with a par value of P100 per share; that the parties mutually agreed that the total market value of the entire shareholdings in BLECOR, based on its balance sheet as of March 31, 1982 is P153,000,000.00 more or less, calculated on the basis of the net book value of its total net assets excepting BLECOR's operating facilities which is assigned a value of P87.20 million; that after the purchase, Pilipinas shall become the sole stockholder and owner of all the existing and outstanding shares of stock of BLECOR; and that as such sole stockholder and owner of BLECOR Pilipinas intends to dissolve BLECOR by surrendering all the BLECOR shares and receive the distribution of all BLECOR assets as liquidating dividends. In reply thereto, I have the honor to inform you that the shareholders-sellers shall be subject to the capital gains tax prescribed under Section 34(g) of the Tax Code as amended by Batas Pambansa Blg. 221 on the net capital gains derived from the sale of their BLECOR shares to Pilipinas. On the other hand, as the sole stockholder of BLECOR after its purchase "of the entire one hundred percent (100%) of the subscribed, issued and/or outstanding shares of stock in BLECOR", Pilipinas will receive upon the complete liquidation of BLECOR, all the assets of BLECOR as liquidating dividends thereby realizing capital gains or loss. The gain, if any, derived by Pilipinas consisting of the difference between the fair market value of the liquidating dividends and the adjusted cost to Pilipinas of its shareholdings in BLECOR (Secs. 83(a) and 24(a); Sec. 256, Rev. Regs. No. 2) shall be subject to the ordinary corporate income tax prescribed under Section 24(a) of the Tax Code, as amended. iatdc Very truly yours (SGD.) RUBEN B. ANCHETA Acting Commissioner