BIR Ruling No. 134-83

July 20, 1983 BIR RULING NO. 134-83 S i r : This refers to your letter dated April 20, 1983 stating that in 1980 your client, the MICO EQUITIES, INC. (MICO), a domestic corporation, entered into a business arrangement whereby its 394,424 shares of stock in Malayan Overseas Insurance Corporation of Taiwan (Malayan Overseas) acquired at a cost of P3,929,842.31 were assigned or ceded to Malayan International Insurance Corporation of Bahamas (Malayan International) in exchange for 2,191,243 original shares of stock of Malayan International amounting to P32,868,645 giving rise to a theoretical margin of P28,938,802.69; that the 1/4 of 1% tax was paid on the said exchange of stocks; and that even before the exchange, both Malayan Overseas and Malayan International are wholly-owned and controlled by MICO. cd Based on the foregoing facts, you request confirmation of your opinion that the theoretical margin arising from the transaction will not be considered as personal holding company income for purposes of the gross income requirement under Section 64(a)(1) in relation to Section 63 of the Tax Code. In reply thereto, I have the honor to inform you that under Section 65(b) of the Tax Code as implemented by Section 222 (5) of the Income Tax Regulations, all gains realized from the sale or exchange of shares or securities includible in gross income is personal holding company income for purposes of the gross income requirement under Section 64(a)(1) of the same Code. Since both Malayan Overseas and Malayan International are wholly-owned and controlled by MICO, no gain or loss shall be recognized on the transfer of its 394-424 Malayan Overseas shares in exchange for 2,191,243 original Malayan International shares. Consequently, in the determination of whether the aforesaid gross income requirement is met, the theoretical margin of P28,938,802.69 arising out of such exchange of shares shall not be considered as personal holding company income, and is, therefore, not subject to the additional 45% tax imposed by Section 63 of the Tax Code. cdta Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue