Exemption of Transfer of the Real Properties from Creditable Withholding Tax

September 4, 1990 BIR RULING NO. 171-90 50 (b) 000-00 171-90 Gentlemen : This refers to your letter dated March 06, 1990 stating that on May 26, 1989, a ruling was issued by this Office whereby due to the merger of your affiliates, namely: Chemphil-LMC, Inc. (CLI) and Chemphil Manufacturing Corporation (CMC), and pursuant to Section 34(c) of the Tax Code, the transfer of certain parcels of land from the latter to the former was exempted from the payment of capital gains tax; that on February 27, 1990, a transaction to implement the merger was entered into between your holding company, Chemical Industries of the Philippines, Inc. (CIP) and CLI whereby two (2) parcels of land are to be transferred to the latter by the former in consideration of CLI shares of stocks; that as a background, you would like to inform this Office that CMC was a result of the spinning off of the inorganic manufacturing operations of CIP; that CMC was a wholly-owned subsidiary of CIP; that the latter in consideration of CMC shares of stocks transferred ownership of two (2) parcels of land which is subject of present transaction; that the transfer of the Certificate of Titles over the said two (2) lots has however, yet to be effected; that until now CIP remains to be the registered owner although the same, for all intents and purposes, have already been transferred from CIP to CMC, at least in your corporate books; that later, CMC merged with LMG Chemicals, Inc., another affiliate comprising the organic manufacturing operations of CIP; that the merger resulted to the incorporation of the herein CLI; that at present, the aforesaid two (2) lots which are practically owned by CMC have to be transferred to CLI by virtue of the said merger, that the exemption under Section 34(c) of the Tax Code was thus, invoked to this effect; that at present, the documentary stamps tax had already been paid to the BIR Office at Pasig; that a query was however, raised as to whether or not the transaction could likewise be exempted from the "creditable withholding tax" pursuant to Revenue Regulations No. 1-90; and that it is your contention that inasmuch as the transaction actually happened several years ago and the transfer is just some sort of a formality involving two (2) sister companies and that the transfer was made in consideration of shares of stock of the absorbed company, the assignment in the case at bar should and must not be covered by the 5% creditable withholding tax under Revenue Regulations No. 1-90. cdta Based on the foregoing representations, you now in effect request a ruling as to whether or not the aforementioned transaction is subject to the creditable withholding tax imposed under Revenue Regulations No. 1-90. In reply, please be informed that in case of tax-free exchanges under Section 34(c) of the Tax Code, where the law does not recognize gain or loss on the exchange but defers tax consequences upon the subsequent sale or disposal of the property, no withholding of tax is necessary at the date of the exchange. (Primer on Revenue Regulations No. 12-89 and Revenue Memorandum Circular No. 80-89 as amended by Revenue Regulations No. 1-90 and Revenue Memorandum Circular No. 7-90). aisadc In view thereof, this Office is of the opinion as it hereby holds that the transfer of the real properties to be effected pursuant to the aforementioned merger under Section 34(c) of the Tax Code is not subject to the creditable withholding tax imposed under Revenue Regulations No. 1-90 amending Revenue Regulations No. 12-89 even if the date of presentation test on the deed to be executed for the purpose relative to your application for the issuance of a Certificate Authorizing Registration with this Office is applied in compliance with Revenue Memorandum Circular No. 7-90. Very truly yours, (SGD.) JOSE U. ONG Commissioner