Whether Gain or Loss is Recognized on the Transfer of Real Properties in Exchange for Shares of Stock under Section 34, Paragraphs (c)(2) and (6)(c) of the Tax Code, as amended

October 25, 1995 BIR RULING NO. 170-95 34 (e) (2) (6) (e) 000-00 170-95 Prime Index Philippines, Inc. 1651 Oroquieta Street Sta. Cruz, Manila Attention: Mr . Andres Pizarro President Gentlemen : This refers to your letter dated March 31, 1995 requesting for a ruling that no gain or loss is recognized on the transfer of real properties by Spouses Andres and Herminia Pizzaro to Prime Index Philippines, Inc. in exchange for its shares of stock under Section 34, paragraphs (c)(2) and (6)(c) of the Tax Code, as amended. cdta It is represented that Prime Index Philippines, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission with an authorized capital stock of One Million Pesos (P1,000,000.00) divided into Ten Thousand (10,000) shares with a par value of One Hundred (P100.00) per share; that the incorporators of the corporation, with the corresponding number of shares subscribed and paid-up are as follows: Name No. of Amount Amount Shares Subscribed Paid-up Andres L. Pizarro 600 P60,000 P30,000 Honorata P. Talavera 200 20,000 10,000 Herminia C. Pizarro 600 60,000 30,000 Zosima L. Pizarro 200 20,000 10,000 Rodolfo D. Pizzaro 100 10,000 5,000 Agnes R. Pizarro 100 10,000 5,000 Anatalio D. Canlas 200 20,000 10,000 Total 2,000 P200,000 P100,000 ==== ======= ======= that on April 6, 1981 the corporation increased its authorized capital stock from One Million Pesos (P1,000,000.00) divided into Ten Thousand (10,000) shares with a par value of One Hundred Pesos (P100.00)) per share to Five Million Pesos (P5,000,000.00) divided into Fifty Thousand (50,000) shares with a par value of One Hundred Pesos (P100.00) per share, which increase was approved by the SEC on January 29, 1982; that the incorporators of the corporation, with the corresponding number of share subscribed and paid-up are as follows: Name No. of Amount Amount Shares Subscribed Paid-up Andres L. Pizarro 600 P60,000 P 30,000 Honorato P. Talavera 200 20,000 10,000 Herminia C. Pizarro 600 60,000 30,000 Zosima L. Pizarro 200 20,000 10,000 Rodolfo D. Pizarro 100 10,000 5,000 Agnes R. Pizarro 100 10,000 5,000 Anatolio D. Canlas 200 20,000 10,000 Total 2,000 P200,000 P100,000 ==== ======= ======= that Spouses Andres and Herminia Pizarro are the registered and absolute owners of the following properties: Area Historical Property TCT Location (sq. m.) Cost Land RT-9738(279363) Quezon City 953 P 69,975.00 Land N-51474 Antipolo, Rizal 310 14,507.70 Land N-51475 Antipolo, Rizal 310 14,507.70 that on September 28, 1981, a Deed of Assignment was executed by and between Spouses Andres and Herminia Pizarro and Prime Index Philippines, Inc., whereby the former transferred to the transferee corporation the above-mention properties as payment of their respective unpaid subscription for a total of One Hundred Eighty Seven Thousand Five Hundred (187,500) shares of stock with a par value of One Peso (P1.00) per share worth P187,500.00 plus additional subscription of shares of stock to the extent or Three Hundred Thirty Thousand Six Hundred Sixty (330,660) shares pro-rata worth P330,660.00 with a par value of One Peso (P1.00) per share; that as a result of the above transaction the Spouses Andres and Herminia Pizarro are now owning 50.34% of the total voting shares of stock of the said corporation, thus: Amount Percent Name Paid Owned (%) Andres L. Pizarro P302,000 P25.17% Herminia C. Pizarro 302,000 25.17% Hedeliza C. Pizarro 70,000 5.83% Myrna C. Pizarro 70,000 5.83% Olivia C. Pizarro 70,000 5.83% Vicente C. Pizarro 70,000 5.83% Felicidad L. Co 1,000 0.08% ALPizarro Corporation 315,000 26.25% Total P1,200,000 P100.00 ======== ======= and that in support of your request, you submitted to this Office copies of the following documents: prcd 1) Deed of Assignment; 2) Articles of Incorporation of Prime Index Philippines, Inc.; 3) Transfer Certificates of Title 4) Tax Declarations; 5) Certification of the acquisition and zonal value of the properties transferred; 6) Certification by the corporate secretary of its authorized capitalization and the par value of the shares of stock and percentage of ownership of the shares of stock by the transferors as a result of the transaction; and 7) Other pertinent documents. In reply thereto, please be informed that pursuant to Section 34, paragraphs (c)(2) and (6)(c) of the Tax Code, as amended by Republic Act No. 4522 and P. D. Nos. 1705 and 1773, no gain or loss shall be recognized if property is transferred to a corporation by a person, in exchange for stock in such a corporation of which as a result of such exchange, said person, alone or together with others, not exceeding four persons, gains control of said corporation. The term " control" shall mean ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. Control is determined by the amount of stocks received i.e., total subscribed, whether for property or for services by the transferor or transferors. In determining the 51% stock ownership, only those persons who transferred property for stocks in the same transaction may be counted up to a maximum of five. In the instant case, the transferors, after the transfer will own only 50.34% of the total voting power in the transferee corporation (or 0.66% short of the required percentage of ownership of stocks to qualify control of the total voting shares of stock of the transferee corporation). Such being the case, gain or loss shall be recognized both the transferors and the transferee on the transfer by the Spouses of their properties in exchange for shares of stock. In view thereof, the Spouses Andres and Herminia Pizarro shall be subject to the final schedular income tax and the corresponding documentary stamp taxes on each and every transfer in your favor of real properties respectively situated in Quezon City and Antipolo, Rizal and covered by TCT Nos. RT-9738(279363), N-51474 and N-51475, pursuant to then Section 34(h) and Section 196 of the Tax Code, as amended. cdpr Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue