BIR Ruling [UN-147-95]

April 11, 1995 BIR RULING [UN-147-95] Chemical Industries of the Philippines, Inc. Chemphil Bldg., 851 A. Arnaiz Ave. Legaspi Village, Makati, Metro Mla. Attention: Atty . Rolando P . Navarro Vice-President Legal Services Gentlemen : This refers to your letters dated July 22, 1994 and January 10, 1995 stating that on September 15, 1989, the Chemical Industries of the Philippines, Inc. (CIP) merged with two of its fully owned affiliates namely, Amarem Realty Corporation (AMAREM) and E.S. Garcia Development Corporation (ESGAR) with CIP as the surviving corporation; that on April 18, 1991, this Office issued a favorable ruling to the effect that the said reorganization is in fact a merger within the contemplation of Section 34(c)(2) of the Tax Code; and that accordingly, the transfer of ESGAR and AMAREM of all their assets to CIP "shall not give rise to the recognition of gain or loss"; and that in connection therewith relative to the basis of the computation of the amount of the documentary stamp tax due upon the transfer of the assets to CIP, the BIR Regional Office at Makati made an assessment on the basis of the zonal value of a Makati based real property to be transferred. cdtech Based on the foregoing representations, you now request a ruling confirming your opinion that the basis of the computation of the amount of documentary stamp tax due upon the transfer of the assets solely for stocks to CIP as a result of merger, should not be the existing zonal value but the book value of the said property at the time of the merger on the ground that the transaction is one of merger and not an ordinary transfer of property. In reply, please be informed that pursuant to Section 196 of the Tax Code, as amended, a conveyance or deed whereby an asset consisting of land is assigned or transferred to the purchaser is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty. A stock in a corporation is a valuable consideration for transfer of real property (Section 177, Documentary Stamp Tax Regulations). Accordingly, if a parcel of land, is exchanged with stock in a corporation as in this case, the latter is the consideration, the value of which shall be the basis of the documentary stamp tax on the Deed of Assignment executed to effect the aforesaid transfer of real property (BIR Ruling No. 215-000-00-109-92 dated April 06, 1992). The value shall be the fair market value which shall not be less than the par value of the stocks. In view thereof, your aforesaid opinion cannot be confirmed by this Office. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Office) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)