BIR Ruling No. 161-83

September 14, 1983 BIR RULING NO. 161-83 Gentlemen : This refers to your letter dated May 25, 1983, requesting a ruling on the tax consequences of the proposed transfer by General Foods Corporation (GFC) of its ownership of Franklin Baker Co. of the Philippines (FBCoP) shares to General Foods Manufacturing Corporation (GFMC). cdta It is represented that FBCoP is s domestic corporation wholly owned by GFC, a U.S. company. GFMC is also a U.S. company wholly owned by GFC. There are 135,000 shares issued by FBCoP, 134,995 of which are owned by GFC and five shares are held by five FBCoP directors. The book value of the shares is P294.70 per share as to March 31, 1983. GFC proposes to transfer its FBCoP shares to GFMC in line with the corporate reorganization going on among the companies owned by GFC. Said reorganization is intended, among others, to place under GFMC all manufacturing subsidiaries of GFC and under another wholly-owned subsidiary of GFC all of its marketing activities. No cash is involved in the transfer of shares since there is no effective transfer of beneficial ownership. In reply thereto, please to informed that, on the basis of the facts as herein represented, no sale of stocks took place between GFC and its wholly-owned subsidiary, GFMC involving FBCoP stocks, another GFC wholly-owned subsidiary. Consequently, no gain was realized by GFC for income tax purposes. Moreover, assuming that gain was realized, the same is exempt from capital gains tax imposed by Section 34(g) of the Tax Code, in accordance with Article 14(2) of the RP-US Tax Treaty which provides: "(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or in Article 7 (Income from Real Property) shall be taxable only in the Contracting State in which the alienator is a resident." Under the foregoing provisions of the Tax Treaty, the gains derived, if any, from the proposed transfer of FBCoP shares by GFC to GFMC shall be taxable only in the United States. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue