Transfer of All the Assets of the Corporation to the New Corporation

June 12, 1958 BIR RULING NO. 320-58 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants 490 San Luis, Manila Gentlemen : This is in reply to your letter dated May 14, 1958 requesting a ruling on behalf of your client, the Atlantic, Gulf and Pacific Company of Manila, concerning its reorganization from a U.S. corporation to a Philippine corporation by means of the procedure described therein. You stated that the corporations involved in the plan of reorganization are your client, the Atlantic, Gulf and Pacific Company of Manila (hereinafter called the "Corporation") and a corporation to be organized under the laws of the Republic of the Philippines (hereinafter called the "New Corporation"). The relevant facts, as represented, appear to be as set forth hereunder. The "Corporation" was organized on July 22, 1905 under the laws of the State of West Virginia for the purpose of engaging in business in the Philippines. It was issued a license to do business in the Philippines on January 5, 1909, and since that time its entire business has been conducted in the Philippines and all of its income are derived from sources within the Philippines. Its business consists of engineering, contracting, manufacturing and merchandising and its present authorized capital consists of 50,000 common voting shares, with a par value of $100.00 each, of which 24,000 shares are presently issued and outstanding. All the present stockholders of the corporation are American and Filipino citizens and about 70% of all shareholders are residents of the Philippines. It is now proposed that a new corporation will be organized under the laws of the Republic of the Philippines to be known as "Atlantic, Gulf and Pacific Company of the Philippines" or such other name as may be lawfully used in the Philippines. The capital of the New Corporation will consist of 100,000 shares of common voting stock having a par value of P100.00, Philippine currency, per share. The incorporators of the New Corporation will consist of five individuals, who will most probably be the officers of the Corporation, and the original subscribers to the stock of the New Corporation would be the Corporation for and in behalf of its various stockholders. The Corporation will transfer all its assets to the New Corporation solely in exchange for at least 48,000 shares of the common voting stock of the New Corporation and the assumption by the latter of all the liabilities of the former. The shares of stock will be issued by the New Corporation to the Corporation for the account of, and thereafter immediately distributed to, the latter's stockholders in proportion to their holdings therein. No money, property, or dividend whatsoever will be received by the stockholders of the Corporation except the shares of stock issued as aforestated by the New Corporation to the Corporation. The Corporation will then cease to do business and will completely liquidate by distributing to its stockholders all of the shares of the New Corporation received in the exchange upon surrender of its outstanding shares. The license issued to the "Corporation" by the Philippine Government to do business in the Philippines will then be surrendered. cdpr It is further stated that the plan of the Corporation to reorganize and reincorporate itself into a Philippine corporation is motivated by sound business reasons. Conduct of the business by a Philippine corporation will enable the New Corporation to obtain additional financing in the Philippines and will eliminate the discrimination which exists where the business is conducted by a foreign corporation. It is also stated that the principal purpose of reorganizing the corporation is to improve and expand the operations of its business and that the proposed plan is being undertaken not for the purpose of escaping the burden of taxation and that the same is designed to effectuate a mere change in identity and form by transferring for sound business reasons the place of domicile and organization of the Corporation from West Virginia to the Philippines. Under the foregoing facts, this Office is of the opinion that: (1) The proposed transfers of all the assets of the Corporation to the New Corporation to be organized under the laws of the Republic of the Philippines in exchange solely for voting stock of the latter and the assumption by the New Corporation of all the liabilities of the Corporation and the distribution of the shares of the New Corporation to the stockholders of the Corporation is not in pursuance of a plan solely for the purpose of escaping the burden of the Philippine income tax. (2) The proposed acquisition by the New Corporation of all of the assets of the Corporation and the assumption by the former of all the liabilities of the latter in exchange solely for 48,000 shares of its common voting stock will constitute a merger within the meaning of Section 35(c) (5) (b) of the National Internal Revenue Code. (3) No gain or loss will be recognized to the Corporation on the proposed exchange pursuant to Section 35(c) (2) (a) of the Tax Code. Neither will gain or loss be recognized to any of the stockholders of the Corporation as a result of the exchange of their shares in the Corporation for shares of the New Corporation in accordance with Section 35(c) (2) (b) of the said Code. (4) The basis of the aggregate of the shares of the New Corporation to be received by the stockholders of the Corporation will be the same as the basis of the aggregate of the shares of the Corporation exchanged therefor (Section 35(c) (4), National Internal Revenue Code). prcd Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue