Payment of Liquidating Dividends to All the Stockholders

April 12, 1988 BIR RULING NO. 136-88 21 (a) 33 (b) 322-87 136-88 Gentlemen : This refers to your letter dated January 11, 1988 stating that on April 30, 1987 all the stockholders of Metropolitan Investments Corporation unanimously voted and adopted resolutions to liquidate according to a plan of liquidation and in accordance with the requirements of the National Internal Revenue Code. In connection therewith, you are requesting a ruling on the following: "1. How will the liquidating dividends payable to all the stockholders, who are all individuals, be treated? "2. As a result of the liquidation, the stockholders will be deriving tremendous gains (the difference between the investment of the stockholders and the fair market value of the properties distributed). How would subject gain be taxed to the individual stockholders? "3. The assets of the corporation to be distributed include shares of stock of companies listed and traded through the stock exchanges and shares of stock of companies that are not listed and traded through the stock exchanges. Will the corporation be liable to pay capital gains tax due on the transfer of subject shares of stock in favor of the stockholders?" In reply, I have the honor to inform you as follows: (1) Since the individual stockholders of your company will receive upon its liquidation all its assets as liquidating dividends, they will thereby realize capital gain or loss. The gain, if any, derived by the individual stockholders consisting of the difference between the fair market value of the liquidating dividends and the adjusted cost to the stockholders of their respective shareholdings in the said corporation (Sec. 66(a); Sec. 256, Income Tax Regulations) shall be subject to income tax at the rates prescribed under Section 21(a) of the Tax Code, as amended by Executive Order No. 37. Moreover, pursuant to Section 33(b) of the Tax Code, as amended, only 50% of the aforementioned capital gain is reportable for income tax purposes if the shares were held by the individual stockholders for more than twelve months and 100% of the capital gains if the shares were held for less than twelve months; and (2) The company is not subject to the capital gains tax on the transfer of shares of stock which are among the assets of the corporation under liquidation in favor of its stockholders. cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner