Cost Basis of the Shares of Stock to the Transferor and Transferee

August 3, 1987 BIR RULING NO. 231-87 35 (c) (2) 222-85 231-87 S i r : This refers to your letter dated July 28, 1987 stating that on January 30, 1987, the Securities and Exchange Commission approved the Articles of Incorporation and By-Laws of the Philippine Automotive Manufacturing Corporation (PAMCOR); that the total subscribed and paid up capital stock of PAMCOR was funded by way of a corporate reorganization involving the transfer of substantially all the assets of the Canlubang Automotive Resources Corporation (CARCO) solely in exchange for 100% of PAMCOR voting shares of stock; that part of the assets transferred are "property, plant and equipment" which are stated at sound value as determined by an independent appraiser; that sound value represents replacement/reproduction cost less accumulated depreciation based on appraisal; that CARCO was subsequently dissolved; and that PAMCOR is now jointly owned by Nisho-Iwai Corporation (50%) and Mitsubishi Motors Corporation (50%) both of Tokyo, Japan. In connection therewith, you now request confirmation of your opinion that insofar as PAMCOR (the transferee corporation) is concerned, the cost basis of the assets received from CARCO (the transferor corporation) is the aggregate of the par value of the shares it issued to CARGO in exchange. In reply, please be informed that based on the foregoing facts, the above corporate reorganization is a merger within the contemplation of Section 35 (c)(2) of the Tax Code, as amended. Accordingly, the cost basis to the transferor (CARCO) of the shares of stock shall be the same as the original acquisition cost or adjusted cost basis to CARCO of the properties exchanged therefor; while the cost basis to the transferee (PAMCOR) of the assets exchanged for its stocks shall be the same as it would be in the hands of the transferor (CARCO), increased by the amount of the gain recognized to CARCO on the transfer. (Sec. 35 (c)(5)(a) & (b), Tax Code as amended) Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner