BIR Ruling [UN-453-95]

December 27, 1995 BIR RULING [UN-453-95] Integrated Microelectronics, Inc. Km. 22, East Service Road South Expressway, Bo. Cupang Muntinlupa, Metro Manila Attention: Ms . Elenita B . Arellano Deputy Comptroller Gentlemen : This refers to your letters dated September 14, 1995 and October 5, 1995, in effect requesting for a ruling confirming your opinion that losses suffered by Integrated Microelectronics, Inc. (IMI) from the closure of Integral Silicon Solutions, Inc. (ISSI) are capital losses which may be offset against the capital gains derived from the sales of its shares in Don Jose Properties, Inc. (DJPI) and Laguna Auto-Parts Manufacturing Corporation (LAMCOR). It is represented that on March 6, 1995, the Board of Directors of ISSI, a 100% owned subsidiary of IMI, authorized and approved the cessation of the operation of the former effective March 31, 1995, resulting to a capital loss of P10,000,000.00; that on May 26, 1995, IMI sold its 24,000 shares of stock of DJPI and 188,200 shares of stock of LAMCOR; that the said shares of stock are not listed and traded on the stock exchange; and that the sales prices are P2,400,000.00 and P30,905,400.00 respectively, resulting to a capital gain of P13,195,400.00. In reply, please be informed that under Section 66(a) of the Tax Code, as amended, it is provided that "where a corporation distributed all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or deductible loss, as the case may be". On the other hand, Section 256 of Revenue Regulations No. 2 which implements said Section 66 of the Tax Code, provides that "if the amount received by the stockholder in liquidation is less than the cost or other basis of the stock, the loss in the transaction is deductible to the extent allowed in Section 34(c) of the Tax Code". Said Section 34(c) [now Section 33(c)] provides that "losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges". Thus, in BIR Ruling No. 146-81 dated August 4, 1981 which involves the very same provisions of the Tax Code and regulations, this Office ruled that "losses suffered by a stockholder from liquidation of a corporation are capital losses which may be offset against gains derived from the sale or exchange of capital assets which may or may not be shares of stocks". Accordingly, and in line with the dictum laid down in said BIR Ruling No. 146-81, this Office hereby confirms your opinion that losses suffered by IMI from the closure of ISSI are capital losses which may be offset against the capital gains derived from the sale of its shares of stock in DJPI and LAMCOR. This ruling is being issued based on the facts as represented. If upon investigation it is found out that the facts are different, then this ruling shall be considered null and void. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)