BIR Ruling [UN-170-94]

June 2, 1994 BIR RULING [UN-170-94] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated May 10, 1994 stating that Greenwich Pizza Corporation (Greenwich) is a newly incorporated domestic corporation organized and existing under and by virtue of the laws of the Philippines, primarily engaged in the operation of fastfood business; that Greenwich has an authorized capital stock of P10,000,000.00 consisting of 10,000,000 'shares with a par value of P1.00 per share, of which 4,157,922 shares have been issued and fully paid-up as follows: No of Shares Name Subscribed and Fully Paid Amount (1) Green Foods Franchising, Inc. 2,400,564 P2,400,564 (2) Greenwich Foods, Inc. 1,524,243 1,524,243 (3) Rizalina J. Tueres 152,432 152,432 (4) Ilona C. Fajardo 80,678 80,678 (5) Cresida C. Tueres 1 1 (6) Juan J. Tueres Jr. 1 1 (7) Juan C. Tueres III 1 1 (8) Jose Francisco C. Tueres 1 1 (9) Ma. Yvonne C. Tueres 1 1 that the subscribed shares were issued to the above Greenwich shareholder in exchange for the latter's assignment of certain assets which were valued and recorded in Greenwich books at their book value amounting to P4,157,922; and that Greenwich shareholders propose to transfer to Jollibee Foods Corporation (Jollibee) a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, eighty percent (80%) of their shareholders in Greenwich amounting to P3,326,338.00 in exchange for new shares of stock of Jollibee. In connection therewith, you are requesting confirmation of your opinion that for purposes of computing the net capital gain that will be derived therefrom by the Greenwich shareholders, the same shall be computed as follows: "1. The selling/transfer price shall be the fair market value (FMV) of the Greenwich shares to be transferred to Jollibee and not the FMV of the Jollibee shares received in exchange; "2. Since the Greenwich shares are not listed in the stock exchange, the FMV of these shares shall be based on their book value nearest the valuation date; "3. The cost of Greenwich shares to be transferred to Jollibee shall be based on their acquisition cost which is the book value of the assets transferred by said stockholders to Greenwich in exchange for Greenwich shares. In reply thereto, please be informed that your opinions: (1) That the selling/transfer price shall be the fair market value (FMV) of the Greenwich shares to be transferred to Jollibee and not the FMV of the Jollibee shares received in exchange is hereby confirmed (Sec. 6, Revenue Regulations No. 2-82) (2) That since the Greenwich shares are not listed in the stock exchange, the FMV of these shares shall be based on their book value nearest the valuation date is likewise confirmed. (Sec. 6, Revenue Regulations No. 2-82); (3) That the cost of Greenwich shares to be transferred to Jollibee shall be based on their acquisition cost which is the book value of the assets transferred by said stockholders to Greenwich in exchange for Greenwich shares is hereby confirmed (Revenue Regulations No. 2-82) (BIR Ruling No. 046-90 dated March 29, 1990) cdtech Very truly yours, ALICIA P. CLEMENO Acting Asst. Commissioner (Legal Services)