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October 22, 2013

BIR RULING NO. 387-13

Sec. 40 (C) (2) and (6) (c), 1997


NIRC

Mr. Antonio Ma. P. Soriano


3780 Cenca St., Palanan, Makati City

Sir :

This refers to your letters dated February 28, 2012 and June 27,
2012 requesting for revalidation of BIR Certification-Ruling SN-094-2004
dated May 18, 2004. Documents submitted show that the afore-stated
ruling pertains to the tax-deferred transfer of properties by Antonio Ma. P.
Soriano covering Transfer Certificates of Title (TCT) Nos. 237745 and
237746 in exchange for 2,500 shares of Anacom Management Corporation
(Anacom for brevity) under Section 40 (C) (2) and (6) (c) of the National
Internal Revenue Code (NIRC) of 1997, as amended.
It is represented that Antonio Ma. P. Soriano (TIN 106-214-449) is
the registered owner of the following properties:
TCT Location Land Area Zonal Value Historical
No. (in sq.m.) (in Pesos) Cost (in Pesos)

266405 F. Agoncillo St. 55 880,000.00 137,500.00


(formerly 237745) Ermita, Manila
264471 1 F. Agoncillo St. 144 2,304,000.00 360,000.00
(formerly 237746) Ermita, Manila

3,184,000.00 497,500.00
========== =========
On the other hand, Anacom (TIN 005-031-413-000) is a domestic
corporation duly registered with the Securities and Exchange Commission
(SEC) under SEC Registration No. A1997-20618 dated November 18,
1997; that it has an authorized capital stock of Ten Million Pesos
(P10,000,000.00) divided into Ten Thousand (10,000) shares with a par
value of One Thousand Pesos (P1,000.00) per share; that the
incorporators of the corporation with their corresponding shares subscribed
and paid-up are as follows: ICTHDE
Name No. of Amount Amount
Shares Subscribed Paid-up

Arthur N. Aguilar 1,500 P1,500,000.00 P376,250.00


Antonio Ma. P. Soriano 625 625,000.00 250,000.00
Jaime Manuel F. Armonio 125 125,000.00 31,250.00
Alvin N. Aguilar 125 125,000.00 31,250.00
Andres D. Bautista 125 125,000.00 31,250.00

Total 2,500 P2,500,000.00 P720,000.00
===== =========== ==========

that Antonio Ma. P. Soriano (Assignor) on May 12, 2004 executed a Deed
of Transfer with Subscription Agreement in favor of Anacom whereby he
transferred to the latter the afore-stated properties in exchange for 2,500
shares of stock of Anacom, broken down as follows:

TCT No. Allocation of Shares

266405 (formerly 237745) 691


264471 (formerly 237746) 1,809 2

Total 2,500
=====

and that as a result of the transfer, the above-named assignor gains


control of Anacom by owning 62.5% of the total voting stocks of the said
corporation as follows:

Name No. of Amount Amount % of


Shares Subscribed Paid-up Ownership

Arthur N. Aguilar 1,500 P1,500,000.00 P376,250.00 30.0


Antonio Ma. P. Soriano 3,125 3,125,000.00 2,750,000.00 62.5
Jaime Manuel F.
125 125,000.00 31,250.00 2.5
Armonio
Alvin N. Aguilar 125 125,000.00 31,250.00 2.5
Andres D. Bautista 125 125,000.00 31,250.00 2.5

Total 5,000 P5,000,000.00 P3,220,000.00 100%
===== =========== =========== =====
On May 18, 2004 this Office issued BIR Certification-Ruling SN-094-
2004, pertinent portion of which states that:
"THIS IS TO CERTIFY that, on the basis of the representations and
documents submitted, particularly the Application and Joint
Certification executed on May 14, 2004 and submitted to the Bureau
on May 14, 2004, original copy of which is attached hereto and made
an integral part hereof, the transfer of the properties appearing in
Annex "1" hereof, by and between: DEICHc

Name of Transferor/s TIN Address

Antonio P. Soriano 106-214-449 3780 Cuenca, Makati City

- and -
Name of Transferee TIN Address

Anacom Management 005-031-413-000 301 Asian Mansion,


Corporation Dela Rosa St., Legaspi
Village, Makati City
is not subject to income tax/capital gains tax/expanded withholding
tax/donor's tax/and value-added tax. The transaction is, however,
subject to documentary stamp tax as follows:
Transaction Tax Base Tax Amount
(Amount in Pesos) Rate Due

Transfer of real P15.00 on each


P3,184,000.00 Exempt under
property P1,000.00,
or fractional part thereof RA No. 9243
in excess of P1,000.00 which took
effect on
March 20, 2004

P1.00 on each P200.00


Original issuance of P2,500,000.00 P12,500.00
or
shares or interest of fractional part thereof.
transferee (new rate under R.A.
corporation 9243)
Even if the assignor had already partially implemented the above-
stated Certification-Ruling when TCT No. 264472 (formerly 264471) was
issued in the name of Anacom and the appropriate stock certificate was
likewise released in the name of Antonio Ma. P. Soriano corresponding to
his 1,809 shares subscription. Still Certification-Ruling SN-094-2004 had
already lose its validity relative to TCT No. 266405 (formerly 237745) when
the herein parties did not comply with the 90-days annotation period as
required by Section 7 of Revenue Regulations No. 18-2001. It is of no
moment that the parties waited for a Court Order 3 which came two (2)
years after and way past the said obligatory period.
In support of your request, you then submitted to this Office the
following documents: 1) Duly notarized Application and Joint Certification
(BIR Form 1927) dated May 14, 2004; 2) Proof of payment of the
processing and certification fee dated May 13, 2004; 3) Original copy of
the Deed of Transfer with Subscription Agreement dated May 12, 2004; 4)
Copy of the Articles of Incorporation and By-Laws of Anacom; 5) Certified
true copy (LRA CCV Form) of TCT No. 266405; 6) Certified true copy of
the Tax Declaration No. C-073-00138 and photocopy of C-073-04-00626
(for the old TCT No. 237745); 7) Photocopy of Certificate of Payment
dated May 4, 2004 issued by the City Treasurer's Office of Manila, Real
Estate Division stating that there have no Real Estate Tax Delinquencies
as of May 4, 2004; 8) Certified true copy of the zonal valuation certificate
attested to by the OIC-Chief of the Asset Valuation Division, BIR; 9)
Photocopy of the Deed of Absolute Sale of the subject property; 10)
Original copy of the Corporate Secretary's Certificate stating that Lourdes
F. Quimson is the designated duly authorized signatory to the Deed of
Transfer with Subscription Agreement dated May 12, 2004; 11) Certified
true copy of the General Information Sheet (GIS) of Anacom; and 12) and
other pertinent documents.
In reply thereto, please be informed that pursuant to Section 40 (C)
(2) and (6) (c) of the Tax Code of 1997, as amended, no gain or loss shall
be recognized if property is transferred to a corporation by a person, in
exchange for stock in such a corporation of which as a result of such
exchange, said person, alone or together with others, not exceeding four
persons, gains control of said corporation. The term "control" shall mean
ownership of stocks in a corporation possessing at least 51% of the total
voting power of all classes of stocks entitled to vote. Control is determined
by the amount of stocks received i.e., total subscribed by the transferor. In
determining the 51% stock ownership, only those persons who transferred
property for stocks in the same transaction may be counted up to a
maximum of five. aDSAEI

Accordingly, no gain or loss shall be recognized on the transfer by


Antonio Ma. P. Soriano of his real property covered by TCT No. 266405 in
exchange for 691 shares of stock of the transferee corporation, Anacom,
considering that as a consequence of the exchange, he gained control of
the transferee corporation by owning 62.5% of its total voting stocks. 4
It should be emphasized, however, that Section 40 (C) (2) and (6) (c)
of the Tax Code of 1997, as amended, merely defers recognition of the
gain or loss from such transaction, for in determining the gain or loss from
a subsequent transaction of the property or of the stocks involved in the
exchange, the original or historical cost of the property or stocks is
considered. Thus, if Antonio Ma. P. Soriano will later sell or exchange the
shares of stock he acquired in the exchange, he shall be subject to income
tax on the gains he derived from such sale or exchange, taking into
consideration that the cost basis of the shares shall be the same as the
original acquisition cost or adjusted cost basis to the transferor of the
property exchanged therefor; and that the cost basis to the transferee of
the property exchanged for stocks shall be the same as it would be in the
hands of the transferor. [Sec. 40 (C) (5) (a) and (b) of the 1997 Tax Code]
Moreover, you are further advised that in order that the parties to the
exchange can avail of the non-recognition of gains provided for in Section
40 (C) (2) and (6) (c) of the Tax Code of 1997, as amended, they should
comply with the requirements hereunder mentioned:
A. The transferor must file with his income tax return for the
taxable year in which the exchange transaction was consummated, a
complete statement of all facts pertinent to the exchange, including:
1. A description of the property they transferred, or of their
interest in such property, with a statement of the original
acquisition cost/adjusted cost basis or other basis thereof
at the time of the transfer;
2. The kinds of stocks received and preferences, if any;
3. The number of shares of each class received; and
4. The fair market value per share of each class at the date
of the exchange.
B. On the other hand, the transferee corporation must file with its
income tax return for the taxable year in which the exchange was
consummated the following:
1. A complete description of the property received from the
transferor;
2. A statement of the original acquisition cost or other basis
of the property in the hands of the transferor and the
adjusted cost basis thereof at the time of the transfer; and
ICTDEa

3. Information with respect to the capital stock of the


corporation including:
a. The total issued and outstanding capital stock
immediately prior to and immediately after the
exchange with a complete description of each class
of stock;
b. The classes of stocks and number of shares issued
to the transferor in the exchange; and
c. The fair market value as of the date of the
exchange of the capital stock issued to the
transferor.
In addition to the foregoing requirements, the parties, shall enclose
with their respective income tax returns for the taxable year in which the
tax-free exchange occurred a copy of the request for ruling filed with, and
the corresponding ruling issued by the Bureau of Internal Revenue, both
duly stamped received by the appropriate office of the Bureau of Internal
Revenue. Such persons shall include as a note to their respective audited
financial statements for the taxable year in which the exchange occurred a
statement to the effect that they hold such assets/shares acquired in a tax-
free exchange and the year in which such exchange occurred, and in the
taxable years until the subject property are subsequently transferred to
another transferee.
The parties shall, pursuant to Section 58 (E) of the Tax Code of
1997, as amended, also cause the Corporate Secretary to annotate at the
back of the Certificates of Stock, the date the Deed of Assignment was
executed, the original or historical cost of acquisition of the shares of stock
involved, and the fact that no gain or loss was recognized as a result of
such exchange; provided however, that any violation by the Register of
Deeds of this condition shall be penalized under Section 269 of the same
Code.
It is further required that a TCT/CCT/Share of Stock that bears the
annotation of substituted bases of the real property/shares of stock
transferred/received in connection with this transaction, as duly certified by
the RD/Corporate Secretary, should be submitted to the Law Division,
Bureau of Internal Revenue, 7/F National Office Building, Diliman, Quezon
City, within ninety (90) days from the date of the receipt of this Certification,
by any of the parties to the exchange transaction. Otherwise, this ruling
shall be void and without effect, and the Chief, Law Division shall refer the
docket of the case to the Prosecution Division for appropriate action.
Pursuant to Section 199 (m) of the Tax Code of 1997, as amended
by Republic Act (RA) No. 9243 which took effect on March 20, 2004,
transfer of property pursuant to Section 40 (C) (2) of the 1997 Tax Code,
as amended, is now exempt from the payment of documentary stamp tax
(DST). Accordingly, the transfer by Antonio Ma. P. Soriano of his real
property to Anacom is not subject to DST under Section 196 of the Tax
Code of 1997, as amended.
However, the shares to be issued by Anacom are original issues
subject to the documentary stamp tax imposed by Section 174 of the Tax
Code of 1997, as amended, which shall attach upon acceptance by the
corporation of the stockholder's subscription regardless of the actual
delivery of the certificates of stock.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be ascertained that the
facts are different, and/or any of the requirements imposed in this letter are
not complied with, then this ruling shall be considered as null and void. AECDHS
Very truly yours,

(SGD.) KIM S. JACINTO-HENARES


Commissioner of Internal Revenue
Footnotes
1. Now in the name of Anacom Management Corporation under TCT No.
264472.
2. Now in the name Antonio P. Soriano under Stock Certificate No. 017.
3. Section 50 of Presidential Decree No. 1529 requires a prior Court
Approval before the transfer, disposition and closure of an alley lot.
4. Together with the transaction involving TCT No. 264471 (formerly
237746).