Coverage of the Prohibition Against the Deduction of Losses from the Sales or Exchanges of Property

July 27, 1987 BIR RULING NO. 216-87 31 000-00 216-87 S i r : This refers to your letter dated July 9, 1987 stating that the Canlubang Automotive Services Corporation (CASCO) is a wholly-owned subsidiary of the former Canlubang Automotive Resources Corporation (CARCO) now the Philippine Automotive Manufacturing Corporation (PAMCOR); that CARCO/PAMCOR is in turn owned jointly by Nisho Iwai Corporation (50%) and Mitsubishi Motors Corporation (50%) both of Tokyo, Japan; that over the years; CASCO accumulated unpaid accounts and notes payable and accrued expenses representing liabilities to CARCO/PAMCOR for the acquisition of spare parts and working capital requirements; that CASCO now has a negative equity and has filed a petition for voluntary insolvency with the Regional Trial Court and will eventually be liquidated, that neither CARCO/PAMCOR (a manufacturing firm) and CASCO (a service firm) is a personal holding company within the purview of Section 65 of the Tax Code; and that no individual owns directly more than 50% of the outstanding stocks of CARCO and CASCO. In connection therewith, you now request confirmation of your opinion that CARCO/PAMCOR and CASCO are not covered by the provision of Section 31(b)(3) of the Tax Code, as amended which prohibits the deduction of losses from sales or exchanges of property. adc In reply thereto, I have the honor to inform you that Sec. 31(b)(3); Sec. 30(b)(3)(B) and Sec. 30 (e)(1) all of the Tax Code, as amended provides, viz: "SEC. 31. Items not Deductible (a) General Rule xxx xxx xxx "(b) Losses from sales or exchanges of property . In computing net income, no deduction shall in any case be allowed in respect of losses from sales or exchanges of property, directly or indirectly (1) . . . (2) . . . However, considering that CASCO has already filed a petition for voluntary insolvency and will eventually be liquidated; that no individual owns directly or indirectly more than 50% of the outstanding stocks of CARCO/PAMCOR and CASCO; and that neither CARCO/PAMCOR nor CASCO is a personal holding company within the purview of Section 65 of the Tax Code, CARCO/PAMCOR and CASCO are not covered by the prohibition against the deduction of losses from the sales or exchanges of property, under Section 31(b)(3) of the Tax Code, as amended as well as the deduction of interest expense and bad debts under Section 30 (b) and (e) of the Tax Code, as amended by Executive Order No. 37. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner