Establishment of New Amounts of the Search Fee Charged by Korean Intellectual Property Office (KIPO) and Handling Fees Charged by the Australian Patent Office (APO), Korean Intellectual Property Office (KIPO) and United States Patent and Trademark Office (USPTO)

November 13, 1987 BIR RULING NO. 361-87 35-c-2 138-86 361-87 Gentlemen : This refers to your letter dated January 15, 1987 requesting confirmation of your opinion to the effect that the merger of your clients, Procter & Gamble Philippine Manufacturing Corporation (PMC) and Richardson Vicks Corporation (RVC) qualifies as a tax exempt reorganization under Section 35(c) (2) of the Tax Code, as amended. It is represented that on December 16, 1986, PMC and RVC, both domestic corporations duly organized and existing under and by virtue of the laws of the Philippines, executed a Plan of Merger and an Articles of Merger under the terms of which RVC is merged into PMC; that in deciding and agreeing to merge; PMC and RVC are motivated by the following business reasons: (1) there is a necessity for their operations to be harmonized along unified operations policies in order to achieve efficiency and effectiveness and to optimize the use of the resources of both constituent corporations; (2) the merger of RVC into PMC will enable the constituent corporations to simplify operations and achieve efficiency and economy by eliminating duplication of efforts and facilities; (3) the merger of RVC with PMC will strengthen PMC's long-term competitiveness in the domestic and worldwide economies and enable PMC to achieve and maintain a stronger financial position; (4) the merger of RVC into PMC will result in business advantages, among which are (a) reduction of overall operation and production cost; (b) simplified management and greater efficiency, and (c) increased profitability through the pooling of resources, that under the terms of the Plan and Articles of Merger, PMC as the surviving corporation (whose corporate name shall be changed to "Procter and Gamble Philippines, Inc." (PGP) upon the effectivity of the merger) shall acquire all the assets and assume all the liabilities of RVC (as they appear in its audited financial statements as at 30 September 1986) in exchange for the issuance of 1,040,000 of its common shares to RVC with a par value of P10.00 per share; the shares of stock of RVC then outstanding in the hands of RVC's stockholders, with a par value of P100.00, shall be exchanged for the corresponding shares of PMC received by RVC, as follows: each RVC share shall be exchanged for and converted into 10 shares of stock of PMC, the surviving corporation; that the stockholders of RVC shall be deemed stockholders of the surviving corporation from and after the effective date of the merger; that after the effective date of the merger, each holder of an outstanding certificate of stock representing shares of the capital stock of RVC shall forthwith surrender the same duly endorsed to the surviving corporation for cancellation, and each such holder shall receive in exchange therefor a certificate or certificates of stock representing the corresponding shares of stock of the surviving corporation to which such holder shall be entitled as aforesaid; that the arrangement assures continuity of interest of the stockholders of RVC in the assets and business acquired by PMC, the surviving corporation, by virtue and in pursuance of the Plan of Merger; and that the plan of merger provides that the basis of the assets and property transferred to the surviving corporation, in pursuance of the plan of merger, shall be the same as it would have been in the hands of RVC, while the basis of the shares of stock of PMC, the surviving corporation, received by the stockholders of RVC shall be the same as the basis of the RVC stock surrendered in exchange therefor. iatdc In reply thereto, I have the honor to inform you that the above reorganization is a merger within the contemplation of Section 35(c)(2) and 5(b) of the Tax Code because a corporation (PMC) acquired all the assets and assumed all the liabilities of another corporation (RVC) solely for stocks, the transaction undertaken being for a bonafide business purpose and not solely for the purpose of escaping the burden of taxation. Accordingly, the transfer by RVC of all its assets and liabilities to PMC solely, in exchange for the latter's shares of stock shall not give rise to the recognition of gain or loss pursuant to Section 35(c)(2) of the Tax Code. No gain or loss shall be recognized to RVC upon the distribution of PMC shares to RVC stockholders. In complete redemption, of their stocks under Section 35(c)(2) of the Tax Code. No gain or loss shall be recognized to RVC stockholders upon the exchange of their stocks solely for PMC stocks under Section 35(c)(2) of the Tax Code. The basis of the assets received by PMC shall be the same as it would be in the hands of RVC. The basis of PMC stocks received by the stockholders of RVC shall be the same as the basis of the RVC stocks surrendered in exchange therefor. If the total liabilities to be assumed by PMC upon effective merger date exceed the historical or original acquisition cost (cost basis) of the assets transferred by RVC, the excess shall be recognized as gain of RVC. (Sec. 35(c)(4)(b), Tax Code as amended by P.D. No. 1773). It is understood, however, that upon the subsequent sale or exchange of the assets or shares of stock acquired by the parties, the gain derived from such sale or exchange shall be subject to income tax. The abovementioned transactions shall not be subject to the gift tax as there is no intention to donate on the part of any of the parties. However, in order that the above-described re-organization can be considered a merger under Section 35(c)(2) of the Tax Code, the parties to the merger should comply with the following requirements: A. The plan of reorganization should be adopted by each of the corporations, parties thereto, the adoption being shown by the acts of its duly constituted responsible officers and appearing upon the official records of the corporation. Each corporation, which is a party to the reorganization, shall file, as part of its return for the taxable year within which the reorganization occurred a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization, including: (1) A copy of the plan of reorganization, together with a statement, executed under the penalties of perjury, showing in full the purposes thereof and in detail all transactions incident to, or pursuant to the plan. (2) A complete statement of the cost or other basis of all property, including all stocks or securities, transferred incident to the plan. (3) A statement of the amount of stock or securities and other property or money received from the exchange, including a statement of all distributions or other disposition made thereof. The amount of each kind of stock or securities and other property received shall be stated on the basis of the fair market value thereof at the date of the exchange. (4) A statement of the amount and nature of any liabilities assumed upon the exchange, and the amount and nature of any liabilities to which any of the property acquired in the exchange is subject. B. Every taxpayer, other than a corporation, a party to the reorganization, who received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in his income tax return for the taxable year in which the exchange takes place a complete statement of all facts pertinent to the non-recognition of gain or loss upon such exchange including: (1) A statement of the cost or other basis of the stock or securities transferred in the exchange; and (2) A statement in full of the amount of stock or securities and other property or money received from the exchange, including any liabilities assumed upon the exchange, and any liabilities to which property received is subject. The amount of each kind of stock or securities and other property (other liabilities assumed upon the exchange) received shall be set forth upon the basis of the fair market value thereof at the date of the exchange. C. Permanent records in substantial form shall be kept by every taxpayer who participates in a tax-free exchange in connection with a corporate reorganization showing the cost or other basis of the transferred property or money received (including any liabilities assumed on the exchange, or any liabilities to which any of the properties received were subject), in order to facilitate the determination of gain or loss from a subsequent disposition of such stock or securities and other property received from the exchange. (par. 9803-B. P-H 1963 el. p. 9611). In addition to the foregoing requirements, permanent records in substantial form must be kept by the corporations participating in the merger showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of the stock received as a consequence of the merger. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner