BIR Ruling [UN-202-95]

May 31, 1995 BIR RULING [UN-202-95] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated May 18, 1995 requesting confirmation of your opinion that shares of stock of Rohm Electronics Philippines, Inc. ("REPI") held by Rohm Co., Ltd. ("Rohm Co.") which the latter exchange for shares of Rohm Electronics Asia Pte., Ltd. ("Rohm Asia") is a tax-free exchange pursuant to the provisions of Section 34(c)(2) of the Tax Code, as amended. cdt It is represented that REPI is a corporation organized and existing under the laws of the Philippines; that REPI is partly owned by Rohm Co., a nonresident Japanese corporation, which holds 1,960,000 REPI shares; that Rohm Asia, a corporation resident of and incorporated under the laws of Singapore, is a 100%-owned subsidiary of Rohm Co.; that Rohm Co., as mother company, made a policy decision centralizing in Rohm Asia all sales distribution and purchases of all Rohm companies; that as an offshoot of such policy, Rohm Co. exchanged its 1,960,000 REPI shares for 18,205,311 shares of Rohm Asia; and that even after the exchange, Rohm Co. still retains 100% ownership of Rohm Asia, thus, also retaining indirect ownership of REPI. In reply thereto, please be informed that your opinion is hereby confirmed. No gain was realized when Rohm Co. exchanged its REPI shares with Rohm Asia for the latter's own shares. No cash is involved in the exchange since there is no effective transfer of beneficial ownership of the REPI shares involved as Rohm Asia, the transferee-corporation, is a wholly-owned subsidiary of Rohm Co. before and after the exchange. Consequently, no gain was realized either by Rohm Co. or Rohm Asia for income tax purposes. Moreover, assuming that gain was realized, the same is exempt from capital gains tax pursuant to Section 34(c)(2) of the Tax Code, as amended. In accordance with Article 13(5) of the RP-Japan Tax Treaty which provides: "(5) Gains from the alienation of any property other than those referred to in paragraphs (1), (2), (3) and (4) shall be taxable only in the Contracting State of which the alienator is a resident." the gains derived, if any, from the transfer of REPI shares of stock by Rohm Co., to Rohm Asia shall be taxable only in Japan (BIR Ruling Nos. 161-83 and BIR Ruling No. 89-91 dated September 16, 1991). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)