Tax Consequence of Transfer of Stocks by AFPMBAI to its Members

July 15, 1987 BIR RULING NO. 207-87 24 (e) (4) 000-00 207-87 Gentlemen : This refers to your letter dated May 7, 1987 stating that AFP General Insurance Corporation (AFPGIC) is a wholly-owned subsidiary of AFP Mutual Benefit Association, Inc. (AFPMBAI); that a plan is being considered to change the ownership of AFPGIC by transferring or donating all the AFPMBAI shares in AFPGIC's capital stock to the members of AFP and INP-present owners of AFPMBAI; that to pursue their plan, AFPGIC will declare cash dividends to its sole stockholder AFPMBAI which will, in turn transfer or donate its stockholdings to the individual members of AFP and INP; that because of the large number of new stockholders from the ranks of AFP and INP, the right to ownership on the new stocks, will be assigned to and exercised by the various trustees, namely: Chief of Staff of AFP, Commanding Generals of the AFP's major services and the Director General of the INP; and that you are requesting a ruling on the tax consequence of the following: 1. AFPGIC's declaration of cash dividend to AFPMBAI; 2. Transfer of AFPGIC stocks from AFPMBAI to the members of AFP and INP. In reply, please be informed that cash dividends to be declared by AFPGIC in favor of its sole stockholder, AFPMBAI, are intercorporate dividends received by a domestic corporation from another domestic corporation; hence, said dividends are not subject to corporate income tax under Section 24(e)(4) of the Tax Code, as amended by Executive Order No. 37. The subsequent transfer of AFPMBAI stocks to its members, the personnel of AFP and INP, is not also subject to capital gains or donor's taxes because it is neither a sale, exchange or donation, but merely a conversion of the owner-member contributions to shares of stock. However, as the transfer of AFPMBAI stocks contemplates the original issuance of certificates of stocks, a documentary stamp tax of P1.70 on each two hundred pesos, or fractional part thereof, of the par value of the certificates, shall be imposed on every original issue of the certificates of stock of AFPMBAI, in accordance with Section 188 of the Tax Code. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner