Tax Consequences of the Transactions of Coca-Cola Export Corporation

December 20, 1985 BIR RULING NO. 218-85 24 000-00 218-85 Gentlemen : This refers to your letter dated December 5, 1985 requesting in behalf of your client, Coca-Cola Export Corporation, a ruling on the tax consequences of the following transactions: First Transaction : "THE COCA-COLA EXPORT CORPORATION (TCCEC for short) is a U.S. corporation doing business in the Philippines thru a Branch, hence classified under the National Internal Revenue Code (TAX CODE for short) as a resident foreign corporation. "TCCEC, thru its Philippine Branch, owns 19,000 shares representing 2.375% of the capital stock of COCA-COLA BOTTLERS PHILS., INC. (CCBPI for short), a Philippine corporation. "The shares of TCCEC in CCBPI were required under a tax-free exchange pursuant to Sec. 35(c) (2) of the Tax Code, in exchange for properties recorded in the books of the Philippine Branch of TCCEC, hence the said shares are recorded in the books of the Branch. "In pursuance of the revised plan, TCCEC's shares in CCBPI will be transferred from the books of its Philippine Branch to the books of the Home Office." Second Transaction : "TCCEC has a wholly-owned subsidiary, REFRESHMENT SALES, INC. (RSI for short), a non-resident U.S. corporation. "RSI owns 221,000 shares representing 27.625% of the capital stock of CCBPI. "The shareholdings of TCCEC and RSI in CCBPI constitutes 30% of the capital stock of CCBPI, the 70% are owned by Philippine nationals. "In order to consolidate the CCBPI shareholdings of TCCEC and RSI, TCCEC will transfer its CCBPI shares to RSI. The transfer will be done in the U.S. and without consideration." In reply, I have the honor to inform you as follows: 1. The first transaction consisting of the transfer of the recording of TCCEC's shares in CCBPI from the books of the Philippine Branch to the books of the Home Office abroad is not subject to any Philippine tax. It shall, however, be subject to capital gains tax if the same shall be sold or exchanged. 2. The second transaction is subject to tax based on the capital gains representing the difference of the acquisition or historical cost of the stocks and the fair market value thereof. We will not consider the transfer of CCBPI shares to RSI as being "without consideration." This ruling is based on the facts as presented. However, if upon investigation the same would not be substantiated, then this ruling shall be considered as null and void. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner