Commissioner

ofInternal
Revenuev
Filinvest
Development
Corporation
Petitioner:
Commissionerof

InternalRevenue
Respondent:
Filinvest
Development
Corporation
July19,2011
Emergency
Recit:

FDCowns80%
ofthe
outstanding
sharesofFAI
and67.42%of
FLI.FDCand
FAIenteredinto
a

Deedof
Exchangewith
FLIwherethe
formerwill
transferparcels
oflandtothe
latterandin
exchange,shares

ofstock
ofFLIwere
issuedtoFDC
andFAI.BIR
assessedboth
FDCandFAIfor
deficiencytaxes.
Oneofthebases

forthe
assessmentisthe
cashadvances
FDCextendedin
favorofits
affiliates.The
CIRarguedthat
theywere

interestfree
despitethe
interestbearing
loansitobtained
frombanking
institutions.
I:
(seeissue1)

R:
CIR'spowerto
distribute,
apportionor
allocategross
incomeor
deductions
betweenor

among
controlled
taxpayersmay
beexercisedas
longas
thecontrolled
taxpayer's
taxableincome

isnotreflective
ofthatwhichit
wouldhave
realizedhadit
beendealingat
arm's
lengthwithan
uncontrolled

taxpayer,the
CIRcanmake
thenecessary
rectificationsin
ordertoprevent
evasionoftaxes.
However,theto
powertoimpute

"theoretical
interests"isnot
includedinthe
broadparameters
ofCIR.Thereis
no
evidenceof
actualor

possibleshowing
thattheadvances
FDCextendedto
itsaffiliateshad
resultedtothe
interests
subsequently
assessedbythe

CIR.
Facts:
(Youllreadthis
caseagainunder
adifferenttopic)

Theownerof
80%ofthe
outstanding

sharesof
respondent
Filinvest
Alabang,Inc.
(FAI),
respondent
Filinvest
Development

Corporation
(FDC)isa
holding
companywhich
alsoowned
67.42%ofthe
outstanding
sharesof

FilinvestLand,
Inc.(FLI).

FDCandFAI
enteredintoa
Deedof
Exchangewith
FLIwherebythe
formerboth

transferredin
favorofthe
latterparcelsof
land.In
exchange,
463,094,301
sharesofstock
ofFLIwere

issuedtoFDC
andFAI.Asa
result
oftheexchange,
FLIsownership
structurewas
changed.

FLIrequesteda

rulingfromBIR
totheeffectthat
nogainorloss
shouldbe
recognizedinthe
aforesaid
transfer
ofreal

properties.
Actingonthe
request,theBIR
issuedaruling,
findingthatthe
exchangeis
amongthose
contemplated

underSec34(c)
(2)oftheold
NIRCwhich
providesthat
(n)ogainor
lossshallbe
recognizedif
propertyis

transferredtoa
corporationbya
personin
exchangefora
stockinsuch
corporationof
whichasa
resultofsuch

exchangesaid
person,aloneor
togetherwith
others,not
exceedingfour
(4)persons,
gains
controlofsaid

corporation."

FDCreceived
fromtheBIRa
FormalNoticeof
Demandtopay
deficiency
incomeand
documentary

stamp
taxes,plus
interestsand
compromise
penalties.The
deficiencytaxes
wereassessedon
thetaxablegain

supposedly
realizedbyFDC
fromtheDeedof
Exchangeit
executedwith
FAIandFLI,on
thedilution
resulting

fromthe
Shareholders
AgreementFDC
executedwith
RHPLaswellas
thearms
lengthinterest
rateand

documentary
stamptaxes
imposableonthe
advancesFDC
extendedtoits
affiliates.
o

FAIsimilarly

receivedfrom
theBIRa
FormalLetterof
Demandfor
deficiency
incometaxes.

BothFDCand
FAIfiledtheir

respective
requestsfor
reconsideration/p
rotest.TheCIR
failedtoresolve
their
requestthus,
FDCandFAI

filedapetition
forreviewwith
theCTA
pursuanttoSec
228ofthe1997
NIRC.
o

Theyallegethat

notaxablegain
shouldhavebeen
assessedfrom
thesubjectDeed
ofExchange
sinceFDCand
FAIcollectively

gainedfurther
con