Tax Consequence of the Proposed Transfer of Shares of Stock

July 5, 1988 BIR RULING NO. 295-88 24 (e) (2) 347-87 295-88 Gentlemen : This refers to your letter dated June 8, 1988 requesting confirmation of your opinion to the effect that the proposed transfer by General Food Manufacturing Corporation (GFMC) of its Franklin Baker Company of the Philippines (FBCP) shares of stock to General Foods Corporation (GFC) is not subject to capital gains tax. It is represented that FBCP is a corporation organized under the laws of the Philippines whose entire outstanding shares of stock consist of 135,000 shares, of which 134,995 shares are registered under the name of GFMC, while the remaining 5 qualifying shares are held by individual stockholders; that GFMC, a U.S. company is wholly-owned by GFC, also a U.S. company; that GFMC will be liquidated and all its assets and liabilities as of April 30, 1988 will be taken over by GFC; and that among the assets to be transferred to GFC are the FBCP's shares of stock. In reply thereto, I have the honor to inform you that, on the basis of the facts as herein represented, no sale of stocks took place between GFC and its wholly-owned subsidiary GFMC involving FBCP shares of stock. Consequently, no gain was realized by GFC for income tax purposes. Moreover, assuming that gain was realized, the same is exempt from capital gains tax imposed by Section 24(e)(2) of the Tax Code in accordance with Article 14(2) of the RP-US Tax Treaty which provides: "(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or in Article 7 (Income from Real Property) shall be taxable only in the Contracting State in which the alienator is a resident." Under the foregoing provisions of the Tax Treaty, the gain derived, if any, from the proposed transfer of the FBCP shares by GFMC to GFC shall be taxable in the United States. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner