BIR Ruling No. 424-14

October 24, 2014 BIR RULING NO. 424-14 San Miguel Foods, Inc. 23/F, JMT Corporate Condominium Bldg. ADB Avenue, Ortigas Center Pasig City Attention: Ms. Evangeline H. Zarate AVP & Finance Manager Gentlemen : This refers to your letter dated August 16, 2010 requesting for confirmation of your opinion on the tax treatment of the transfer of assets and liabilities of Monterey Foods Corporation (MFC) to San Miguel Foods, Inc. (SMFI). We defer the resolution of the following issues pending your submission of the necessary documents relative to the transaction: 1) Whether gain or loss shall be recognized on the transfer of all assets and liabilities by both the transferor and transferee, 2) Whether the unused input VAT of MFC may be transferred for the use or tax credit against the output VAT liabilities of SMFI; 3) Whether the transfer of all assets and liabilities are not subject to donor's tax; 4) Whether the surrender of the shares of stock held by the stockholders of MFC to SMFI in complete redemption and cancellation of the capital stock of MFC is not subject to DST. As regards the request that no (VAT) shall be payable on the transfer of assets, please be informed that Section 105 of the National Internal Revenue Code of 1997, as amended (NIRC) identifies the persons liable for the Value-Added-Tax. Thus, HTCDcS "SECTION 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added-tax (VAT) imposed in Sections 106 to 108 of this Code. xxx xxx xxx." Moreover, Section 109 of the NIRC enumerates those transactions that are exempt from VAT. Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. Nowhere in Section 109 of the NIRC does it state that the transfer of assets to a corporation in exchange for shares of the latter is exempt from VAT. Thus, there is no legal basis to exempt from VAT the transfer of assets of Monterey Foods Corporation to San Miguel Foods, Inc. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue