CIR vs.

BF Goodrich

Facts:

BF Goodrich is an American company
seeking to manufacture tires and other
rubber products in the Philippines. The
Central Bank required it to develop a
rubber plantation. For this, BF Goodrich
purchased parcels of land in Basilan under
the Public Land Act and the Parity
Amendment. Upon expiration of the Parity
Amendment, BF Goodrich had to sell the
lands to Siltown Realty which in turn
leased the lands to the former for 25
years, extendible to another 25 years.

BF was assessed a deficiency in donors tax
in relation to the sale of its Basilan
holdings to Siltown. The BIR deemed the
consideration for the sale insufficient, and
the difference between the fair market
value and the actual purchase price a
taxable donation.

Issue:
Whether or not the deficiency donors tax
assessment is valid.

Held:

NOT VALID. The fact that BF sold the
property to Siltown for a price lesser than
its declared market value does not
constitute a false returm. It is possible that
real property may be sold for less than
adequate consideration for a bona fide
business purpose. In such, the sale
remains an arms length transaction.

In this case, BF was compelled to sell the
property at a price less than its market
value, because it would have lost all
ownership rights over it upon expiration of
the parity amendment. In other words, BF
was trying to minimize its losses.

Even though a donors tax is different from
a capital gains tax, the tax return filed by
BF to report its income was sufficient
compliance with the legal requirement to
file a return.