04-20-2005 BIR Ruling [DA-182-05]

April 20, 2005

BIR RULING [DA-182-05]
R.A. No. 9243; RR 13-2004; Regs. 26
Philippine Life Insurance
Association, Inc.
Suite 54, Fifth Floor
Legaspi Suites, 178 Salcedo Street
Legaspi Village, Makati City
Attention: Mr. Jose L. Cuisia, Jr.,
President
Gentlemen :
This has reference to your letters dated February 22 and March 1, 2005, requesting
reconsideration of this Office's interpretation of Section 183 of the Tax Code of
1997, as amended by Republic Act (RA) No. 9243 and as implemented by Revenue
Regulations (Rev. Regs.) No. 13-2004 regarding the collection of DST on life
insurance policy based on the amount of premium collected which, consequently, is
being done every time the premium is paid by the insured. HCEISc
The request is anchored on your argument that the objective of the amendment of
Section 183 is primarily to provide some relief to the insurance industry by way of
savings in DST; that the tax relief is meant to be the first in several decades; that
the original bills had actually sought to grant a relief in the form of abolishing both
the DST and the premium tax imposed on life insurance policies; that, however, the
final version of the Senate bill had proposed exemption from DST only of insurance
policies whose premium paying period exceeds five years; that the said final version
of the bill as approved by the Bicameral Conference Committee meeting held on
November 19, 2003, is the one wherein the tax base for purposes of DST was
changed from "amount insured" to "amount of premium collected"; that you
presented a simulation of the amount of DST payable on a given insurance wherein
you compared the DST payable pursuant to (i) Sec. 183 of the Tax Code, (ii)
Revenue Regulations (Rev. Regs.) No. 13-2004 implementing RA 9243 which
amended Sec. 183 (BIR interpretation) and (iii) PLIA's interpretation of Sec. 183, as
amended by RA 9243; that PLIA's version is premised on the above argument; and
that you further alleged that then Sec. Camacho had committed to provide said
relief. TDSICH

In reply, please be informed that this Office has considered the merit of your
argument that the objective of the amendment is to provide relief to the insurance
industry by way of savings in DST on life insurance policies. However, contrary to
your position that the "collection of DST based on the premium collected will result
to a heavier tax burden," we find the same to be without factual and legal bases.
Rather, we conclude that the alleged heavier tax burden is the result of your
erroneous interpretation. In fine, we hereby answer each and specific matter you
raised as follows, to wit:
I.
The payment of DST on life insurance premium pursuant to Rev. Regs. 132004 is not a relief.
(As reference, we made use of the simulated amounts which you presented to Sen.
Ralph Recto.)
Issue Payment
Products

Age

Fee

Annual

Term Amount

DST

Premium

(Old) (BIR's)(PLIA's)
1. Participating
Whole Life

35

Lifetime

1,000,000

27,360

2,500 4,446.00

68.40

(Veresalife 100)
We believe otherwise. Rather, since the payment of DST under RA 9243, as
implemented by Rev. Regs. No. 13-2004 is being imposed on the premium price, it is
but logical that DST (P68.40 per above simulation) is imposed whenever a portion of
the insurance premium is collected. Unlike in the old provision of Sec. 183, a DST,
i.e., P2,500 per above simulation, is imposed on the value of the policy, which is
being paid by the policyholder when the policy is issued. This alone is an enormous
DST relief.
2.
Revenue regulations are meant to implement the provisions of the law and
not to interpret or alter its purpose. For a rule or regulation to be valid, it must be
consistent with the provisions and intent of the enabling statute which it is
supposed to implement. Section 7 of Rev. Reg. 13-2004 gives a different
interpretation of Section 183 of the Tax Code, as amended.
The bone of contention is the imposition of DST which under Reg. Regs. 13-2004 is
required to be paid every time a premium is collected on the policy. You posit that
the intent of the law may accurately be gleaned from the rationale or explanatory
notes accompanying the various bills of both Houses which became the bases of the
final version of amended Sec. 183, and that is, to abolish both the DST and the
premium tax. However, in the final version presented by Sen. Ralph Recto to the

Bicameral Committee, the relief came in the, form of exempting from DST those
policies with a paying period of five years (5) years or more. This was modified by
then DOF Sec. Camacho who proposed to change the tax base from the face
amount of the policy to the amount of premium collected. DHSaCA
The foregoing narration strengthens our position that the final tax relief granted
under RA 9243 is in the form of reduction of the tax base of DST under Sec. 183 of
the Tax Code from sum assured to amount of premium collected.
The terms "premium" and "premium charged" have been previously defined by the
Bureau of Internal Revenue (BIR) in Regulations (Regs.) No. 26. It is axiomatic that
when Congress made use of the term "premium" they are referring to the term as
understood and accepted both by the BIR and the insurance industry. The principle
of legislative intent suggests that the law has been enacted as intended.
Under said Sec. 61 of Regs. No. 26 the term "premium" means the agreed price for
assuming and carrying the risk. It includes all that is received by the underwriter
therefore and is in fact the total consideration receivable for underwriting the risk,
whether in one sum or in installments, during the life of the policy.
We have noted that the law does not simply say "based on the amount of the
premium." It says amount of the premium collected. The term "premium" is
modified/limited by the word "collected." In the same Sec. 61, the different modifier
"charged" was used. Thus, the term "premium charged" has been defined to mean
the total premium payable during the life of the contract of insurance and includes
any additional assessment or charge in the nature of a premium which may be
assessed and charged during the life of a contract of insurance, whether payable in
one sum or in installments and however paid (and though never paid if the contract
of insurance be delivered and accepted or otherwise becomes binding upon the
insurer).
In short, the law requires payment of DST not on the full amount of the premium
price contracted to be paid during the paying period subject to the happening of the
risk insured on the actual amount paid as premium price. Otherwise stated, the
"amount of premium collected" is in fact the actual price/consideration paid for the
insurance coverage upon which the DST 1 should be based. IHCSTE
It is further noted that the term "premium" does not have a plural form such that
the whole amount paid corresponding to the insurance policy, whether paid in one
sum or in installments, is simply called "premium." Conversely, for purposes of
insurance, the collection of premium in installments is merely a mode of collecting
the price agreed to be paid by the policyholder. In short, the initial amount paid
when the insurance policy is issued is merely a portion of the whole consideration
(premium).

3.
On your position that there is only one DST due on the entire policy the
amount of which is based on the initial premium collected, and therefore,
subsequent payments of the portion of the premium are not subject to DST
Your position is premised on fact that DST is a form of excise tax which is being
imposed on the transaction, and by its nature is paid only once i.e., when the
document is made, signed, issued, . . . As a consequence thereof, in the case of life
insurance policy, the DST should be based on the amount of only one premium at
the time when an insurance is made or renewed upon any life or lives.
You further proposed that for practicality and uniformity, the DST should be based
on the amount of one annual premium.
We are constrained to disagree. The law does not specify that the DST shall be
imposed on one premium payment only; it simply says "DST of . . . , of the amount
of premium collected." As earlier discussed, in the previous provision of Sec. 183,
the DST is imposed on the amount assured which is disclosed in the insurance
policy. Under RA 9243, the tax base which is the premium collected will depend on
the amount actually collected during the paying period. DTAcIa
Since a "premium" is allowed to be paid in installments, whether annually, semiannually, quarterly, or monthly, and since the uniform pre-determined installments
are merely portions of the entire premium price, the last payment of which stops
and is deemed completed only upon the happening of the risk insured upon, there is
more reason to collect the DST each time a portion/installment of the premium price
is collected (in short, premium collected). Thus, the imposition of DST each time the
installment amount is collected is called for considering that the actual premium
price (full amount of consideration) is not certain at the time the policy is issued.
Should the insured die early, the full amount of premium will no longer be paid. The
imposition of DST is proper only on the portion of the total premium price collected
i.e., installment premium, either on a monthly, quarterly, semi-annual or annual
basis, or we would violate the principle underlying the DST law which is to impose
the DST on the transaction, that is underwriting the risk.
Therefore, from our end, it is our conclusion that the imposition of DST every time
the premium is collected is by itself a relief. While other provisions of the DST law
require payment of DST only once and upfront, in the case of life insurance, the full
payment of DST is effectively spread over certain period of time, depending on the
number of installments the premium is expected to be paid or upon the happening
of the risk insured.
In the same vein, we conclude that the relief also comes by way of tax reduction in
consideration of the fact that previously, the DST is paid based on "the amount
insured" whereas, under the amended provision it is imposed on the "amount of
premium collected." It is a fact that the amount of insurance coverage is higher
than the premium price. Moreover, since premium is paid in installments and DST is

imposed on the actual portion of the premium collected, the chance is, a lower DST
is actually paid. 2 With reference to the simulation you presented, reality dictates
that a lifespan of 100 years is not normally achievable. In short, the chance of
collecting the full amount of premium will depend on the lifespan of the
policyholder. The shorter the lifespan is the fewer installments premium are actually
collected which effectively will result in lower actual DST payments. SaCIAE
4.
Finally, on the allegation that then Secretary Camacho agreed to the
reduction of DST through the imposition of only one DST based on initial premium
Quoted hereunder is the observation of the Secretary before the Bicameral
Conference Committee, viz.:
"MR. CAMACHO. MR. Chairman, Can we share an observation?
"THE CHAIRMAN (SEN. RECTO). Okay. Yes, please.
"MR. CAMACHO. In the Senate version, Mr. Chairman, there is provision that will
exempt the DST on insurance policies that have a premium paying period of more
than five years. While we support the idea of providing some relief to the insurance
industry, Mr. Chairman, we would like to propose that the form of relief be modified
so that its . . . the exempt, the change would be from using the policy amount as
the basis to the premium amount which is more consistent in terms of taxing the
transaction, which is the premium payments, it's not the policy."
Consistent with this Office's interpretation, as explained above, the relief is in the
form of reduction in the tax base, i.e., from policy amount to the amount of
premium. Likewise, the DST is contemplated to be imposed on the premium
payments which we explained earlier, as actually referring to a portion of the
premium (installment) the amount of which when added together would be the full
amount of premium, or in layman's term, the price or consideration of insurance
coverage.
In fine, the collection of DST on the each portion of the premium collected does not
violate the rule that the DST is a tax on the transaction. The modality of collecting
DST every time a portion of the premium is collected is in effect imposing DST on
the actual amount of the premium collected. Moreover, the foregoing deliberation
implies that the law contemplates that payment of premium may be made in
installments, as when then Sec. Camacho used the phrase "premium paying
period." Therefore, if the amount collected corresponds only to one or more
installments without full payment of the agreed premium price, such amount
collected is merely a portion of the entire premium price. Yet it cannot be
considered the tax base for DST purposes because, as explained earlier, the
"amount of premium collected" refers to the actual consideration/price paid. The
imposition of DST on each amount/portion of the premium collected does not mean
that the tax shall be imposed more than once. TIcAaH

On the basis of the foregoing, this Office holds that the interpretation of RA 9243 as
implemented by Rev. Regs. No. 13-2004, as signed by the Secretary of Finance is
the correct interpretation and in accordance with the objective of the law to grant
DST relief to the insurance industry. HEIcDT
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal & Inspection Group
Footnotes
1.
See Sec. 196 of the Tax Code of 1997 wherein "actual consideration" is being
allowed as the tax base of DST.
2.
Per simulation, the premium for the entire coverage is payable in 65 years.
Conclusively, with the age of the policyholder at 35 when the coverage is taken, the
premium installments being collectible in 65 years, the contemplated lifespan is 100
years old.

06-27-2005 BIR Ruling [DA-288-05]

June 27, 2005
BIR RULING [DA-288-05]
006-89 dtd Jan. 20, 1989
Pioneer Insurance & Surety Corporation
Pioneer House Makati
108 Paseo de Roxas, Legaspi Village
Makati City
Attention: Sally Coyukiat-Ong Pac
Senior Vice President Accounting
Gentlemen :
This refers to your letter dated April 5, 2005 requesting confirmation of your opinion
that no documentary stamp tax (DST) is due on insurance policies issued in Hong
Kong by your Hong Kong Branch Office. SHacCD
It is represented that your company, Pioneer Insurance & Surety Corporation
(hereinafter referred to as "Pioneer") is a domestic corporation engaged in the
business of general insurance, including statutory insurance and acceptance of
reinsurance; that in 1960, Pioneer was authorized by the Insurance Commission to
operate a branch office in Hong Kong; that the branch has been in operation since
1963; that the branch office in Hong Kong is duly registered under the Hong Kong
Companies Ordinance and is duly authorized to write certain categories of the
general insurance business in Hong Kong; that pursuant to such registration, the
Hong Kong Branch Office issues insurance policies and earns direct premiums on
such insurance policies issued in Hong Kong to its Hong Kong clients involving
properties situated outside the Philippines; that a previous BIR ruling, BIR Ruling No.
006-89 dated January 20, 1989, directly addresses the DST implications of the
insurance contracts issued by Pioneer's Hong Kong branch; that the said ruling,
issued to the Insurance Commissioner, states that since "the non-life insurance
policies and bonds are issued in Hong Kong, the same are not subject to the
documentary stamp tax; that this is so because the documentary stamp tax, being
an excise tax, is applicable only to transactions effected and consummated within
the Philippines;" and that in 1994, Republic Act No. 7660 amended Section 173 of
the Tax Code to impose DST wherever the document is made, signed, issued,
accepted, or transferred "when the obligation or right arises from Philippine sources
or the property is situated in the Philippines."

It is, therefore, in this context that you request for confirmation of your opinion that
despite the foregoing amendment, no DST shall be imposed on policies of property
insurance issued by your Hong Kong Branch in Hong Kong to its Hong Kong clients
covering property situated outside the Philippines.
In reply, please be informed that the general rule is still that DST is in the nature of
an excise tax. It is not imposed upon the business transacted, but upon the
privilege, opportunity or facility offered at exchanges for the transaction of the
business. (Commissioner of Internal Revenue vs. Heald Lumber Co., L-16340,
February 29, 1964) Thus, DST is imposed on the privilege of conducting a particular
transaction or executing a particular document within the Philippines, since the
parties to the said transaction or document exercise the privilege, opportunity or
facility offered at exchanges for the transaction of the business in the Philippines.
DAHEaT
R.A. No. 7660, however, introduced an exception to the general rule by inserting in
Section 173 of the Tax Code the phrase "wherever the document is made, signed,
issued or accepted or transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines." The present Section 173 of
the Tax Code provides:
"Sec. 173. Stamp taxes upon documents, instruments, loan agreements, and
papers. Upon documents, instruments, loan agreements, and papers, and upon
acceptances, assignments, sales and transfers of the obligation, right, or property
incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes
prescribed in the following sections of this Title, by the person making, signing,
issuing, accepting, or transferring the same wherever the document is made,
signed, issued, accepted, or transferred when the obligation or right arises from
Philippine sources or the property is situated in the Philippines, and at the same
time such act is done or transaction had: Provided, That whenever one party to the
taxable document enjoys exemption from the tax herein imposed, the other party
thereto who is not exempt shall be the one directly liable for the tax." (Emphasis
ours)
The amendment is meant to plug the loophole in the law which enabled the parties
to a contract to simply go outside the Philippines to sign the document and lawfully
avoid payment of DST. With the amendment, DST will be payable regardless of
where the document is signed, issued, accepted, or transferred, for as long as the
said document pertains to (a) obligations or rights arising from sources within the
Philippines or (b) property situated in the Philippines. Thus, deeds of conveyance
covering real property situated in the Philippines will be liable to DST regardless of
where the deed is executed. cCTaSH

Similarly, insurance policies covering property situated in the Philippines shall be

liable to DST even if the policy is issued abroad. Section 184 of the Tax Code
provides:
"SEC. 184. Stamp Tax on Policies of Insurance Upon Property. On all policies of
insurance or other instruments by whatever name the same may be called, by
which insurance shall be made or renewed upon property of any description,
including rents or profits, against peril by sea or on inland waters, or by fire or
lightning, there shall be collected a documentary stamp tax of Fifty centavos (P0.50)
on each Four pesos (P4.00), or fractional part thereof, of the amount of premium
charged: Provided, however, That no documentary stamp tax shall be collected on
reinsurance contracts or on any instrument by which cession or acceptance of
insurance risks under any reinsurance agreement is effected or recorded."
Applying the afore-quoted Section 184 in relation to Section 173 of the Tax Code to
the case of Pioneer's Hong Kong Branch, the property insurance policies issued by
the said Hong Kong branch will be subject to DST imposed under Section 184 of the
Tax Code, even if such policies are signed or issued abroad, for as long as the
properties which are the object of insurance are situated in the Philippines.
Conversely, where the property insured is situated outside the Philippines, the DST
imposed on property insurance under Section 184 will not apply.
While it may be true that Pioneer's Head Office is considered the same juridical
entity as its Hong Kong branch office under the single-entity concept, such fact is
not relevant in determining liability for DST on property insurance policies which
depend solely on the location of the subject property.
In view of the foregoing, this Office therefore hereby confirms your opinion that the
insurance contracts issued by Pioneer Hong Kong Branch, being in the nature of
property insurance covering properties situated outside the Philippines are not
subject to DST. SAHaTc
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered void.
Very truly yours,
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal and Inspection Group

March 10, 2005

BIR RULING [DA-076-05]
40 (A);
RMC 74-99
DA-023-2003
SGV & Co.
6760 Ayala Avenue
1226 Makati City
Attention: Atty. E. C. Alcantara
Tax Services
Gentlemen :
This refers to your letter dated December 21, 2004 requesting on behalf of your
client, Panasonic Communications Imaging Corporation of the Philippines (PCIP), for
a ruling on the tax consequences of the proposed transfer of its selected assets and
liabilities to Panasonic Communications Corporation of the Philippines (PCP) in
pursuance of its corporate reorganization. TaCDAH
The facts as you represented are as follows:
PCIP is a corporation duly organized and existing under and by virtue of Philippine
laws. It is engaged in the business of manufacturing and export of all equipment,
apparatus, appliances, instruments and devices concerned with information
handling, such as but not limited to copiers, scanners, and printers and other goods
of similar nature. PCIP is a wholly-owned subsidiary of Panasonic Holding
(Netherlands) B.V. (PHN), a corporation duly organized and existing under and by
virtue of the laws of Netherlands. ACcEHI
PHN, on the other hand, is wholly-owned by Matsushita Electric Industrial Co., Ltd.,
(MET) a corporation organized and existing under the laws of Japan.
PCIP is registered with the Philippine Economic Zone Authority (PEZA) as
manufacturer and exporter of the following products and enjoys the incentives
indicated opposite each of the products described below:
Product Code
LC2

Description Incentive

Analog Copiers

5% Gross Income Tax

LCN, LSU

Analog Copiers

Laser-scanning units
L4, L5, L7, LL

L2

Income Tax Holiday

Income Tax Holiday

Digital fax machines

Income Tax Holiday

Multi-function products

Income Tax Holiday

Multi-function products

Income Tax Holiday

As part of the restructuring of MEI's Philippine operation aimed at eliminating

inefficiencies of the current Philippine structure, PCIP proposes to sell, at book value,
the following assets and liabilities to PCP, also a corporation duly organized and
existing under and by virtue of Philippine laws:
AssetsLiabilities
Inventories Estimated liabilities for warranty,
Rental Deposits

customers' claims and other provisions

Deferred Tax Asset

Property and Equipment
PCP is also registered with PEZA as manufacturer and exporter of CD-R/RW and slim
DVD Combination Drives. It is proposed that the transfer by PCIP to PCP of its
selected assets and liabilities, as well as the PEZA incentives applicable to the
above products will take effect on April 1, 2005.
PCIP will thereafter cease business operations and will be subsequently dissolved.
HacADE
Based on the foregoing, you now request for confirmation of your opinions that:
1.
The transfer by PCIP to PCP of its selected assets and liabilities at their book
values pursuant to MEI's Philippine restructuring plan will not result to any income
tax consequence;
2.
The transfer by PCIP, a PEZA-registered enterprise, to PCP, also a PEZAregistered enterprise, of its selected assets and liabilities are exempt from the 10%
value-added tax (VAT);
3.
The transfer by PCIP to PCP of its machinery and equipment placed on leased
real properties, including other personal properties, shall not be subject to
documentary stamp tax (DST).
In reply, please be informed that:

1.
Under Section 40(A) of the Tax Code of 1997, any gain or loss for income tax
purposes shall be determined as follows:
"(A) Computation of Gain or Loss. The gain from the sale or other disposition of
property shall be the excess of the amount realized therefrom over the basis or
adjusted basis for determining gain, and the loss shall be the excess of the basis or
adjusted basis for determining loss over the amount realized. The amount realized
from the sale or other disposition of property shall be the sum of money received
plus the fair market value of the property (other than money) received;"
Thus, if the transfer of assets is made at book value, no taxable gain will be
realized. Consequently, the transfer by PCIP of its selected assets and liabilities at
their book value, assuming the same to be at arms' length, shall not result in a
taxable gain or loss on the part of PCIP. SETAcC
2.
Pursuant to Section 5(3) of Revenue Memorandum Circular No. 74-99 dated
October 15, 1999, which provides, viz.:
"(3) Sale Of Goods, By A PEZA Registered Enterprise, To Another PEZA Registered
Enterprise ( i.e., Intra ECOZONE Sales Of Goods). Its sale of goods or property to
another zone enterprise shall be exempt from VAT, pursuant to Sec. 109(q), NIRC, in
relation to Sec. 24, R.A. 7916, as implemented by Sec. 1, Rule VIII, PART V, of the
PEZA implementing rules and regulations."
Likewise, in BIR Ruling No. DA-023-2003 dated January 28, 2003, this Office has
clarified that the sale by and between two (2) PEZA-registered enterprises of its
properties and assets is not subject to the 10% VAT, pertinent portion of the
aforesaid Ruling states that:
"In interpreting and applying the above-cited section of the Tax Code and in relation
to Section 24 of R.A. No. 7916, as amended by R.A. No. 8748, this Office in Revenue
Memorandum Circular No. 74-99 declared that sale of goods or property by a PEZAregistered enterprise to another PEZA-registered enterprise shall be exempt from
value-added tax. Considering that Seagate is a PEZA registered enterprise, the sale
of its properties, consisting of the building and equipment, within the ECOZONE
whether to foreign or local buyers shall be exempt from value-added tax pursuant to
Section 109(q) of the Tax Code of 1997. (BIR Ruling No. DA-090-01 dated May 16,
2001)."
Applying the foregoing, it can be said that the sale by PCIP, a PEZA-registered
enterprise to PCP, another PEZA-registered enterprise of its selected assets and
liabilities is deemed exempt from the 10% VAT. SEHaDI
3.
The machinery and equipment placed and/or installed by PCIP on its leased
parcels of land and buildings are considered personal properties. Inasmuch as only
the consideration attributed to the sale of real properties are subject to

documentary stamp tax under Sec. 196 of the 1997 Tax Code, the transfer by PCIP
to PCP of its machinery and equipment on its leased real properties shall not be
subject to documentary stamp tax.
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,
then this ruling shall be considered null and void. aDcHIS

03-14-2005 BIR Ruling [DA-084-05]

March 14, 2005
BIR RULING [DA-084-05]
27 (D) (5); 73; 196
#039-2002; DA-496-2004
First Christian Development Corporation
252 Buendia Avenue, Makati City
Attention: Mr. Noel V. Santos
President
Gentlemen :
This refers to your letter dated November 12, 2004 requesting for a ruling that the
transfer of properties by First Christian Development Corporation ("FCDC") to its
stockholders by way of liquidating dividends, as a consequence of the former's
complete liquidation, is of subject to the corporate income tax, creditable
withholding tax, and documentary stamp tax. DTaSIc
It is represented that FCDC is a domestic corporation duly registered with the
Securities and Exchange Commission on February 14, 1994 having an authorized
capital stock of Fifty Million Pesos (P50,000,000.00); that on November 10, 2004,
the Board of Directors of FCDC unanimously approved to dissolve the corporation by
shortening its corporate life effective December 31, 2004 with no single transaction
whatsoever, as evidenced by its filing of income tax return for non-operation; and
that as a result of the dissolution, the assets of the corporation will be distributed to
its stockholders by way of liquidating dividends, consisting of condominium units, as
follows:
NAME OF STOCKHOLDERS

PROPERTY/IES

(CCT NOS.)
NOEL V. SANTOS

652326502865025

650156502365024
65016
ALEC V. SANTOS

652316506265061

650606503765058
RAYA V. SANTOS

652286506365039

650576506665052
65044
ALAN V. SANTOS

652276503465050

6505365093
MARK V. SANTOS

652296504765064

650466505165065
65003
RINA S. HIZON

650276507065067

650366503265002
ALAN V. SANTOS &
MARL V. SANTOS

65056

RANDY C. SANTOS 650136504865019

650356503365022
650956504365031
650176504564886
NOEL, ALEC, ALAN, RAYA,
RINA & MARK

64879

(Equal ownership)
SARADA S. SANTOS

650122012

JADERANI S. SANTOS
NILO A. SANTOS

650542312

DOLORES A. SANTOS
NILO L. SANTOS

650262112

650552314

652333707

TBA: FOUNDATION 6488764888

TBA: PERSON A

650292201

TBA: PERSON B

650302202

NORA S. SANTOS

650406504165042

650866508765234
2212 2214 2215
2602 2603 3708
MILA SANTOS TANSECO

650856509165230

2601 2607 3704

ELSA L. SANTOS

650186502065021

2104 2106 2107

MYRA SANTOS BRODETT 650596506865069
650886508965092
2403 2412 2414
2604 2605 2608
*FCDC has no liability of any kind.
In reply, please be informed as follows:
1.
The stockholders of FCDC shall realize capital gain or loss, as the case may
be, when the latter distributes to the former its remaining assets (condominium
units) as liquidating dividends. Specifically, Section 73 of the Tax Code of 1997
provides as follows:
"Section 73. Distribution of Dividends or Assets by Corporation.

(A)
Definition of Dividends. The term 'dividends' when used in this Title means
any distribution made by a corporation to its shareholders of its earnings or profits
and payable to its shareholders, whether in money or in other property;
Where a corporation distributes 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 a deductible loss, as the case may
be." [Underscoring ours]
Liquidating gain or loss is in the nature of capital gain or loss, as the case may be,
and therefore treated in the manner stated in Section 39 of the Tax Code of 1997.
The gain, if any, derived by the individual stockholders consisting of the difference
between the fair market value of the liquidating dividends and the adjusted cost to
the stockholders of their respective shareholdings in the corporation (Section 66 (a);
Sec. 256 of Revenue Regulations No. 2, otherwise known as the Income Tax
Regulations) shall be subject to the ordinary income tax rates provided under
Section 24(A)(1)(c) of the Tax Code of 1997. (BIR Ruling No. 039-2002 dated
November 11, 2002)
2.
The conveyance of the condominium units in the form of liquidating dividends
is not subject to income tax, on the part of FCDC, either on its receipt of the
surrendered shares, or its transfer of the aforesaid property to its stockholders.
In BIR Ruling No. 171-92 dated May 28, 1992, this Office ruled that the transfer by
the liquidating corporation of its remaining assets to its stockholders is not
considered a sale of these assets. Thus, a liquidating corporation does not realize
gain or loss in partial or complete liquidation. (W.P. Fox & Sons, Inc., Petitioner, v.
Commissioner of Internal Revenue, Respondent, 15 BTA 115; Jordan Petroleum
Company, 13 AFTR 2d 1692; 227 F. Supp. 174; J.T.S. Brown & Son Company v.
Commissioner of Internal Revenue, 10 TC 840, cited in BIR Ruling No. 196-010-90059-90 dated April 17, 1990). CHcESa
Conversely, neither is a liquidating corporation subject to tax on its receipt of the
shares surrendered by its stockholders pursuant to a complete or partial liquidation
(BIR Ruling No. 171-92, supra).
Accordingly, FCDC is not liable for income tax on either the transfer of its assets to
its stockholders, or on its receipt of the shares surrendered by the shareholders.
3.
The conveyance of the condominium units in the form of liquidating dividends
is not subject to the documentary stamp tax (DST) on sale or transfer of real
property imposed under Section 196 of the Tax Code of 1997.
Section 189 of Revenue Regulations No. 26, otherwise known as the "Documentary
Stamp Tax Regulations" provides, viz.:

"Section 189.
Conveyances by Corporation to Owner of All the Capital. A
conveyance of real estate by a corporation without valuable consideration to an
owner of all its capital stock in consequence of its dissolution is not subject to tax."
(Underscoring and italics supplied)
Under the above-quoted provision, a distribution in liquidation, without
consideration, of the assets of a corporation consisting of condominium units is not
subject to DST imposed under Section 196 of the Tax Code of 1997. Accordingly, the
distribution of the remaining assets of FCDC to its controlling stockholders without
monetary consideration is not subject to DST as prescribed under Section 196 of the
Tax Code of 1997. (BIR Ruling No. 214-96 dated June 26, 1996 and BIR Ruling No.
092-99 date July 8, 1999 citing BIR Ruling No. 059-90) DcITaC
In addition, Section 196 of the Tax Code of 1997 speaks of "all conveyances, deeds,
instruments, or writings, . . ., whereby any land, tenement or other realty sold shall
be granted, assigned, transferred, or otherwise conveyed to the purchaser, or
purchasers, or to any other person designated by such purchaser or
purchasers, . . .". Since it has been held that a corporation that distributes its assets
to its stockholders as liquidating dividends is not deemed to be selling such assets
to the latter, then Section 196 of the Tax Code of 1997 shall not apply. However, the
notarial certification on this deed of assignment is subject to the DST of P15.00,
pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 039-2002 dated
November 11, 2002)
It goes without saying that before the corporation can formally distribute and return
its properties to its stockholders, a clearance must be obtained from the BIR that it
has no outstanding tax liabilities. SAHIaD
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered null and void. AaCEDS
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal and Inspection Group

February 23, 2005

BIR RULING [DA-065-05]
APIC DA-139-2004
Rural Bank of Rosales, Inc. (ROSBANK)
Rizal Street, Poblacion, Rosales, Pangasinan
Attention: Mr. Andres M. Cornejo
Chairman & CEO
Gentlemen :
This refers to your letter dated February 2, 2004 requesting for a ruling that the
transfer of real properties by the Spouses Condrado and Sergia Estrella in favor of
Rural Bank of Rosales, Inc. (ROSBANK) representing additional infusion of capital in
the nature of paid-in surplus is not subject to the capital gains tax imposed under
Section 24 of the Tax Code of 1997. IHEAcC
Documents submitted disclosed that ROSBANK is a domestic corporation duly
registered with the Securities and Exchange Commission; that on October, 31, 2002,
Spouses Condrado and Sergia Estrella executed two (2) separate Deed of
Conveyance, whereby they transferred to ROSBANK two (2) parcels of land located
in Rosales, Pangasinan; that on the same date, Sergia Estrella executed a Deed of
Conveyance whereby she transferred to ROSBANK her paraphernal property also
located in Rosales, Pangasinan; unit the corresponding fair market value/appraised
value of the aforementioned properties are as follows:
Property

Area & value per sq.m.

Valuation

A) Paraphernal Property of Sergia Estrella

TCT No. 21172

4,871 sq.m. @ P3,000/sq.m.

P14,613,000.00

B) Conjugal Property of Spouses Estrella

TCT No. 37196

13,910 sq.m. @ P2,000/sq.m.

27,820,000.00

2,392 sq.m. @ P3,000/sq.m.

7,176,000.00

TCT No. 36556}

TCT No. 36557}
TCT No. 36558}

P49,609,000.00
===========

that the above-listed properties were transferred to ROSBANK as additional

consideration in the nature of paid-in surplus for the existing shares of stock issued
to Spouses Condrado and Sergia Estrella; that by virtue of said transfer of realties,
the book value of the shares of stock owned by Condrado and Sergia Estrella shall
be increased accordingly; and that since the transfer of the above properties
represents additional infusion of capital in the nature of paid-in surplus, no shares
shall be issued by ROSBANK to Condrado and Sergia Estrella. CHIScD
In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, a
final tax of six percent (6%) based on the gross selling price or current fair market
value as determined in accordance with Section 6(E) of the same Code, whichever is
higher, is imposed upon capital gains presumed to have been realized from the sale,
exchange, or other disposition of real property located in the Philippines, classified
as capital assets, including pacto de retro sales and other forms of conditional sales,
by individuals, including estates and trusts. The 6% final tax is still imposed despite
the fact that a transfer of property is made for a legitimate business purpose and
without monetary consideration. 1 This is so because the foregoing tax is based on
the capital gains presumed to have been realized by the taxpayer on the said
transfer transaction. Such being the case, the transfer of the above-listed real
properties to ROSBANK by stockholders Condrado and Sergia Estrella, as
contribution to its capital, is subject to the 6% capital gains tax herein imposed.
On the other hand, Section 56 of Revenue Regulations No. 2, otherwise known as
the "Income Tax Regulations" reads
"Sec. 56.
Contributions by shareholders. Where a corporation requires
additional funds for conducting its business and obtains such needed money
through voluntary process payments by its shareholders, the amounts so received
being credited to its surplus account or to a special capital account, will not be
considered income, although there is no increase in the outstanding shares of stock
of the corporation. The payments in such circumstances are in the nature of
voluntary assessments upon, and represent an additional price paid for, in shares of
stock held by the individual shareholders, and will be treated as an addition to and
as part of the operating capital of the company."
Consequently, the fair market value of the above realties transferred, as so
appraised, being credited to the surplus account of ROSBANK (i.e., additional paid-in
capital) being a capital investment, is not within the purview of the term "taxable
income" as defined in Section 32 of the Tax Code of 1997. Accordingly, the transfer
of the above-listed real properties to ROSBANK by stockholders Condrado and
Sergia Estrella, as their contribution to its capital, should not be treated as income
on the part of the latter, thus, not subject to income tax. (BIR Ruling No. DA-221-02
dated November 25, 2002, cited in BIR Ruling Nos. DA-117-03 dated April 14, 2003
and DA-139-2004 dated March 26, 2004) CSaHDT

Finally, Section 185 of Revenue Regulations No. 26, otherwise known as the
"Documentary Stamp Tax Regulations" provides that
"Sec. 185. Conveyances without consideration. Conveyances of realty not in
connection with a sale, to trustees or other persons without consideration are not
taxable."
Considering that Condrado and Sergia Estrella transferred the above-listed real
properties without the corresponding issuance of additional shares of stock in their
favor, the foregoing will be considered as contribution of additional paid-in capital,
not subject to documentary stamp tax as the above conveyances of realties are
without any consideration and are not made in connection with a sale. (DA-1392004 dated March 26, 2004 citing DA-150-03 dated May 7, 2003)
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered null and void. cTDECH
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal and Inspection Group
Footnotes
1.

Except those transactions specified as exempt under the Tax Code.

12-17-2004 BIR Ruling [DA-640-04]

December 17, 2004
BIR RULING [DA-640-04]
24 (D); 196; 105
DA-127-2002
Quiason Makalintal Barot Torres & Ibarra
21st Floor Robinsons-Equitable Tower
4 ADB Ave. cor. Pedro Poveda Street
Ortigas Center, Pasig City
Attention: Attys. Wilfrido E. Sanchez, Ruelito Q. Soriano
and Benedict R. Tugonon
Gentlemen :
This refers to your letter dated October 16, 2004 requesting on behalf of your
client, Eduardo T. Caniza for a ruling confirming your opinion that the
termination of co-ownership/partition of properties is exempt from capital
gains tax, documentary stamp tax and value-added tax. aAEIHC
It appears that Eduardo T. Caniza (Eduardo for brevity) together with his
brother Ernesto T. Caniza (hereinafter referred to as Ernesto) are the absolute
and registered co-owners of the following real properties jointly titled in their
names:
TCT/CCT No. Location
TCT No. T-98706
Cavinti, Laguna
CCT No. 23284
Unit 101, One Corporate Plaza, Pasay City
TCT No. 215810
T. Alonzo, Sta. Cruz, Manila
TCT No. T-1 5579 Sungay East, Tagaytay City
TCT No. 215811/215812 Platerias, Sta. Cruz, Manila
TCT No. 164922
Masangkay, Tondo, Manila
on October 17, 2002, Eduardo and Ernesto executed a Memorandum of
Agreement whereby the brothers agreed to partition the above-stated
properties as follows:
To: Eduardo T. Caniza
TCT No. T-98706
Cavinti, Laguna
CCT No. 23284
Unit 101, One Corporate Plaza, Pasay City
TCT No. 215810
T. Alonzo, Sta. Cruz, Manila
To: Ernesto T. Caniza
TCT No. T-15579
Sungay East, Tagaytay City
TCT No. 215811/215812 Platerias, Sta. Cruz, Manila
TCT No. 164922
Masangkay, Tondo, Manila
In reply, please be informed that under Section 24(D)(1) of the Tax Code of
1997, a final tax of six percent (6%) based on the gross selling price. or
current fair market value as determined in accordance with Section 6(E) of
the Tax Code of 1997, whichever is higher, is imposed upon capital gains
presumed to have been realized from the sale exchange, including pacto de
retro sales and other forms of conditional sales, by individual, including
estates and trust.
Considering that there is no sale, exchange or disposition of property in the
above-mentioned transaction but merely a partition of the properties among
the co-owners which properties rightfully belong to them and without any

consideration, the same is not subject to capital gains tax imposed under
Section 24(D)(1) of the Tax Code of 1997. TCaEIc
Moreover, the partition of the said properties among the co-owners is not
subject to documentary stamp tax under Section 196 of the Tax Code of
1997, but only to the documentary stamp tax of P15.00 prescribed under
Section 188 of the same Tax Code. (BIR Ruling No. DA-127-2002 dated July
25, 2002)
The transaction is likewise not subject to value-added tax, since the
dissolution of co-ownership and eventually the partition of properties is not a
sale of goods and services pursuant to Section 105 off the Tax Code of 1997.
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, then this ruling shall be considered null and void. aTSEcA
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal and Inspection Group

12-21-2004 BIR Ruling [DA-648-04]

December 21, 2004
BIR RULING [DA-648-04]
RMC 34-91; 43-91; DA-374-2003
Mrs. Elisea D. David
1828 Jose Abad Santos
Tondo Manila
Madam:
This refers to your letter dated October 6, 2004 requesting for exemption
from the payment of capital gains tax.
It is represented that you are now 85 years old and a retired public school
principal; that in 1964 a Deed of Sale has been executed between you and
your eldest son Erlando D. David over a parcel of land measuring 39 square
meters located at No. 1828 Jose Abad Santos, Tondo, Manila, for the purpose
of securing a housing loan from the Social Security System (SSS); that said
Deed of Sale has been executed for convenience and without monetary
consideration; that you want to be fair among all your heirs and put
everything prospectively to avoid confusion and problems in the future; that
you have no intention of selling the same and it is best to remain communal
to serve the needs of any of your heirs; that you did not request Erlando any
financial assistance when you built the present and new structure in 1997;
and that a Deed of Sale has been executed in 1975 to revert back the
property to you, again, for convenience and without monetary consideration.
IEHDAT
In reply, please be informed that the rules on the kind of tax, rate of tax,
zonal or fair market value obtaining at the date of notarization on April 29,
1975 shall be applied in accordance with the provisions of RMC 34-91, as
clarified by RMC 43-91. Therefore, prior to the effectivity of BP Blg. 37, capital
gains from the sale or transfer of real property classified as capital assets
were then subject to the regular income tax rates.
Moreover, a closer perusal of the said transaction would reveal that the
subject property is the same property which you previously transferred to
your son's favor for SSS Housing Loan Program which, as represented, is one
of the requirements for the granting of the loan. In other words, the transfer
of the Title to the property being sold should be complied with in order to
qualify under the SSS Housing Loan Program.
Therefore, considering that the transfer of the subject property is without
consideration and was executed only as a requirement for the granting of the
SSS loan, this Office is of the opinion that the reconveyance of the same in
your favor is exempt from the payment of the capital gains tax imposed
under Section 24(D) of the Tax Code of 1997 and documentary stamp tax
prescribed under Section 196 of the same Code. However, the same is
subject to the documentary stamp of P15.00 as imposed by Section 188 of
the Tax Code of 1997 on acknowledgements. (BIR Ruling No. 042-97 dated
April 8, 1997) cITCAa

This ruling is being issued based on the foregoing representations. If upon

investigation, however, it will be shown that the facts are different from the
said representations, then this ruling shall be considered null and void.
EHCDSI
Very truly yours,
03-04-2014 BIR Ruling No. 079-14
March 4, 2014
BIR RULING NO. 079-14
Secs. 108, 163, 188, 196, R.A. No. 8424; Rev. Regs. 2-98, 17-2003; BIR Ruling
No. 027-2010
Household Development Corporation
3rd Level Starmall Las Pias, CV Starr Avenue,
Philamlife Village, Pamplona, Las Pias City
Attention: Ms. Maribeth C. Tolentino
President
Gentlemen :
This refers to your letter dated March 7, 2013 requesting for a ruling
confirming your opinion that the payment of documentary stamp tax (DST)
by HOUSEHOLD DEVELOPMENT CORPORATION on its sale transaction is
correct and proper pursuant to the provisions of Revenue Regulations No. 172003. CEaDAc
It is represented that HOUSEHOLD DEVELOPMENT CORPORATION, (the
"Buyer") a duly registered domestic corporation with TIN 001-221-703,
entered into an Agreement to Purchase and Sell ("ATPS") with TWENTY TWO
REALTY AND DEVELOPMENT CORPORATION (the "Seller") on June 29, 2012
covering the sale of two (2) parcels of land both located in Barangay Ususan,
Taguig City, Metro Manila. One parcel registered under Transfer Certificate of
Title (TCT) No. 36751 has an area of 18,419 square meters while the other,
albeit unregistered, is covered by Tax Declaration No. GL-011-1500 and has
an area of 1,096 square meters. Pursuant to the stipulations in the ATPS, the
Buyer shall pay an initial down payment equivalent to fifty percent (50%) of
the agreed purchase price and the balance shall be payable in two quarterly
installments. On the same date, the Buyer remitted in full the 6% creditable
withholding tax (CWT) based on the total consideration net of value-added
tax since the initial payment is already 50% of the total consideration. On
February 8, 2013 the parties executed a Deed of Absolute Sale for the parcel
of land covered by TCT No. 36751 after the full payment of the purchase
price. The corresponding DST on the Deed was paid on February 15, 2013.
Based on the foregoing representations, you now request for an opinion on
whether the payment of the DST on the sale and the conveyance of real
property as prescribed in Section 196 of the National Internal Revenue Code
of 1997, as amended (NIRC), after the execution of the Deed of Absolute Sale
with the selling price on the ATPS as basis is correct and proper. aCcADT
In reply thereto, please be informed that Section 196 of the NIRC, provides
that

"SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property.
All conveyances, deeds, instruments, or writings, other than grants,
patents or original certificates of adjudication issued by the Government,
whereby any land, tenement or other realty sold shall be granted, assigned
transferred or otherwise conveyed to the purchaser, or purchasers, or to any
other person or persons designated by such purchaser or purchasers, there
shall be collected a documentary stamp tax, at the rates herein below
prescribed, based on the consideration contracted to be paid for such realty
or on its fair market value determined in accordance with Section 6(E) of this
Code, whichever is higher: . . ."
Corollary, Section 163 of Regulations No. 26, or Revised Documentary Stamp
Tax Regulations which provides:
"SEC. 163. Contract for sale of land. If contract for the sale of land vests
title on the land and improvements thereon, it would be subject to taxation as
a conveyance. If it does not vest title but contains only certain provisions for
the giving of a deed in the future upon compliance with conditions precedent,
it is not subject to tax."
In the same vein, Section 2.57.2 (J) of Revenue Regulations No. 2-98, as
amended by Revenue Regulations No. 17-2003, provides that SEIacA
"xxx
xxx
xxx
For sale of property on installment basis or deferred payment basis where the
Contract to Sell is always executed before the execution of the Deed of Sale,
the said Contract to Sell must be attached to the Deed of Absolute Sale
executed upon completion of the payments and the duly notarized original
duplicate copy of both documents must be presented to the RDO having
jurisdiction of the place where the property is located for validation of the
correctness of payment of all applicable taxes before the issuance of
CAR/TCL.
It is to be noted, however, that in case of sale of real property paid under
installment payment or deferred payment basis, the payment of the
documentary stamp tax (DST) shall accrue upon the execution of the Deed of
Absolute Sale but the basis for the imposition thereof shall be the gross
selling price or fair market value of the property, whichever is higher, as of
the time of the execution of the Contract to Sell.
xxx
xxx
xxx"
Considering that the terms of payment on the sale transaction between
HOUSEHOLD DEVELOPMENT CORPORATION and TWENTY TWO REALTY AND
DEVELOPMENT CORPORATION is on installment basis as stipulated in the
ATPS and that the CWT due thereon has been paid, accordingly, the DST on
the sale and the conveyance of real property as prescribed in Section 196 of
the NIRC, is payable only upon the execution of the Deed of Absolute Sale
(BIR Ruling No. 027-10 dated August 10, 2010) and the basis for the
imposition thereof shall be the gross selling price or fair market value of the
property, whichever is higher, as of the time of the execution of the ATPS
pursuant to Revenue Regulations No. 17-2003. DAcSIC

However, it should be noted that the ATPS is subject to the DST of P15.00
pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-10
dated August 10, 2010)
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different,
then this ruling shall be considered null and void.
Very truly yours,
(SGD.) KIM S. JACINTO-HENARES
Commissioner of Internal Revenue

06-07-2005 BIR Ruling [DA-244-05]

June 7, 2005
BIR RULING [DA-244-05]
40 (C) (2) & (3); 115-98
National Home Mortgage and
Finance Corporation
Filomena Building III
Amorsolo St., Legaspi Village
Makati City
Attention: Mr. Celso delos Angeles
President
Gentlemen :
This refers to your letters dated 14 December 2004 and 18 May 2005
requesting for our confirmation that no gain or loss shall be recognized by the
National Home Mortgage Finance Corporation (NHMFC) upon the transfer of
its mortgage loan receivables in favor of the BALIKATAN HOUSING, INC. (the
"Corporation") in exchange for the latter's shares of stock and other debt
instruments under Section 40(C)(2) of the Tax Code. cEATSI
It is represented that the NHMFC is a corporation created by virtue of
Presidential Decree No. 1267 (1977); that among its objectives are to: (a)
develop and provide for a secondary market for home mortgages granted by
public and/or private home financing institutions [Pres. Decree No. 1267
(1977)]; (b) act as the major government home mortgage institution [Exec.
Order No. 90 (1986)]; and (c) develop and provide a secondary mortgage
market to finance mortgage take and fast track the disposition of existing
mortgages [Exec. Order No. 195 (1999)]; that in line with its objectives,
NHMFC provided financing for various low-cost housing projects and took over
the various loan mortgage accounts of the buyers of houses and lots and that
over the years, many of these loan mortgage accounts defaulted and NHMFC
began to accumulate a portfolio of non-performing loans ("NPLs"); that in
order to liquefy some fifty-five thousand (55,000) of its highly delinquent
NPLs, NHMFC obtained approval from the Office of the President of the
Philippines to incorporate the Corporation as a vehicle for holding on to the
NPLs and to serve as an eventual entry point for other investors; that in light
of the Presidential approval, the Corporation was incorporated with the
Securities and Exchange Commission with an authorized capital stock of Two
Hundred Million Pesos (P200,000,000.00) divided into Two Hundred Thousand
(200,000) common shares with a par value of One Hundred Pesos (P100.00)
per share and One Hundred Eighty Thousand (180,000) redeemable preferred
shares with a par value of (P1,000.00) per share; that out of the Corporation's
authorized capital stock of Two Hundred Million Pesos (P200,000,000.00),
Forty-Nine Thousand (49,000) common shares with a par value of Four Million
Nine Hundred Thousand Pesos (P4,900,000.00) and Fifty-Eight Thousand
(58,000) redeemable preferred shares with a par value of Fifty-Eight Million
Pesos (P58,000,000.00) have been subscribed and fully paid by NHMFC; that

in full payment of its subscription, NHMFC executed a Deed of Assignment

dated 13 December 2004 assigning the NPLs with an aggregate book value of
approximately Thirteen Billion Four Hundred Fifty Three Million Eight Hundred
Six Thousand Five Hundred Sixty Two Pesos and Sixty Centavos
(P13,453,806,562.60) (hereinafter referred to as the "Receivables") at an
aggregate transfer value of Five Billion One Hundred Twenty-Three Million Two
Hundred Nine Thousand Five Hundred Thirty-Nine Pesos and Five Centavos
(P5,123,209,539.05) in favor of the Corporation. On 18 May 2005, NHMFC and
the Corporation executed an Amended Deed of Assignment of Receivables to
reflect mathematical adjustments made with respect to the number and
value of the mortgage loan receivables resulting in a reduction of the book
value of the receivables from P13,453,806,562.60 to P12,837,966,661.00 and
an increase in the transfer value of such mortgage loan receivables to
PhP5,172,936,190.00 instead of PhP5,123,209,539.05. Thus, pursuant to the
Deed of Assignment of Receivables dated as of 13 December 2004 and
following the execution of the Amendment to Deed of Assignment of
Receivables dated as of 18 May 2005, the Corporation issued the following
equity and debt instruments in favor of NHMFC in exchange for the
Receivables:
a.
Equity
Type of Stock
No. of Shares
Par Value per
Paid-in
Premium
share
Preferred
58,000
1,000.00
P58,000,000.00
P688,450,747.55
Common
49,000
100.00
4,900,000.00
0
Total 107,000
P62,900,000.00
P688,450,747.55
b.
Debt
Instrument Issue Value
Senior Debt Instruments + Additional Senior Debt Instruments
3,103,761,714.00
Series "A" Subordinated Debt Instrument + Additional Series "A"
1,055,278,982.76
Subordinated Debt Instrument
Series "B" Subordinated Debt Instrument + Additional Series "B"
262,544,745.69
Subordinated Debt Instrument
Total
4,421,585,442.45
After the transfer by the NHMFC of the Receivables in exchange for the
above-described equity and debt instruments, the outstanding capital stock
of the Corporation is as follows:
Name of Shareholder
No. of Par Value
Amount
Premium
Voting
Shares
Per share
Paid-Up
Power
Preferred Shares
National Home
58,000
1,000.00
P58,000,000.00
P688,450,747.55 Mortgage and Finance

Corporation
Common Shares
National Home
48,995
100.00
P4,899,500.00
0
100%
Mortgage and Finance
Corporation
1
100.00
100.00
0
1
100.00
100.00
0
1
100.00
100.00
0
1
100.00
100.00
0
1
100.00
100.00
0

Total Common
49,000
4,900,000.00
0
100%
Grand Total 107,000
P62,900,000.00
P688,450,747.55 100%
That as a result of the above-described transfer, NHMFC gained control of the
Corporation; that based on the above-mentioned transactions, you requested
our confirmation of your opinion that:
"1.
No gain or loss shall be recognized on the transfer by the NHMFC of the
Receivables to the Corporation in exchange for 100% of the outstanding
voting stock of the Corporation, pursuant to Section 40(C)(2) and (C)(6) of the
Tax Code;
"2.
The basis of the shares of stock or debt instruments NHMFC acquired in
the exchange shall be the same as the original acquisition cost or adjusted
cost basis to NHMFC of the Receivables exchanged therefor; and the cost
basis to the Corporation of the Receivables exchanged for stocks shall be the
same as it would be in the hands of NHMFC, pursuant to Section 40(C)(5)(a)
and (b) of the Tax Code;
"3.
The transfer of the Receivables by NHMFC to the Corporation will not
be subject to value-added tax (VAT);
"4.
The transfer of the Receivables by NHMFC to the Corporation in
exchange for shares of stock and debt instruments shall not be subject to
donor's tax;
"5.
The transfer by NHMFC to the Corporation of the Receivables is exempt
from DST pursuant to Section 199(m) of the Tax Code, as amended by
Republic Act No. 9243;
"6.
The issuance of shares by the Corporation to NHMFC in exchange of
the Receivables will be subject to the DST imposed under Section 174 of the
Tax Code, as amended by Republic Act No. 9243; and
"7.
The issuance of the debt instruments by the Corporation to NHMFC in
exchange for the Receivables will be subject to the DST imposed under
Section 179 of the Tax Code, as amended by Republic Act No. 9243. However,
no DST shall be due on the subsequent assignment, transfer, or amendment
thereof provided there is no increase in the amount or change in the maturity
date from that of the original instrument pursuant to Section 199(f) of the Tax
Code."
and that in support of your request, you submitted to this office copies of the
following documents: (1) BIR Form No. 0605 evidencing payment of the filing

fees; (2) Deed of Assignment of the Receivables executed by and between

NHMFC and the Corporation dated 13 December 2004; (3) Amended Deed of
Assignment of Receivables executed by and between NHMFC and the
Corporation dated 18 May 2005; (4) certified list of the Receivables to be
transferred; (5) A certification as to the original or historical cost or
acquisition/adjusted cost basis of the Receivables; (6) Articles of
Incorporation and By-Laws of the Corporation as filed with the Securities and
Exchange Commission; and (7) Audited Financial Statements of NHMFC as of
December 31, 2003.
In reply, please be informed that pursuant to Section 40(C)(2) and (6)(c) of
the Tax Code of 1997, 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, whether for property or for services by the
transferors. 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.
Section 40(C)(3)(a) of the 1997 Tax Code further states that if, in connection
with the above-described exchange, an individual, a shareholder, security
holder or corporation receives not only stock or securities permitted to be
received without recognition of gain or loss, but also money and/or other
property, the gain, if any, but not the loss, shall be recognized but in an
amount not in excess of the sum of the money and the fair market value of
such other property received. Pursuant to Section 40(A) of the same Tax
Code, the gain from the sale or other disposition of property shall be the
excess of the amount realized therefrom over the basis or adjusted basis for
determining gain, and the loss shall be the excess of the basis or adjusted
basis for determining loss over the amount realized. The amount realized
from the sale or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than money)
received. In an assignment of receivables, the gain shall be the excess of the
amount realized therefrom over the cost or adjusted cost of the receivables
and the loss to be recognized by the transferee from the assignment of
receivables shall be the excess of the cost or adjusted cost of the receivables
over the amount realized. The amount to be realized from the assignment of
receivables is determined by considering the selling/transfer price of the
receivables shall be the fair market value of the property received in
exchange therefor and not the fair market value of the receivables
transferred. (BIR Ruling No. 15-98 dated July 28, 1998)

Accordingly, no gain or loss shall be recognized both to the transferors and

the transferee corporation on the transfer by NHMFC of the Receivables in
exchange for the common shares, redeemable preferred shares of stock and
debt instruments issued by the transferee corporation, considering that as a
consequence of the exchange, the transferor will gain control of the
transferee corporation by owning 100% of its total voting stocks.
Notwithstanding acceptance by NHMC of property consisting of debt
instruments other than shares of stock to be issued by the Corporation in
exchange for the Receivables, NHMFC will not realize any gains by virtue of
the transaction since NHMFC will be transferring property consisting of the
Receivables with a book value of approximately P12,837,966,661.00 in
exchange for shares of stock and debt instruments with an aggregate par
value of only P4,484,485,442.45. CScTDE
It should be emphasized, however, that Section 40(C)(2) and (6)(c) of the
1997 Tax Code merely defers recognition of the gain or loss from such
transaction, for in determining the gain or loss from a subsequent transaction
of the properties or of the stocks involved in the exchange, the original or
historical cost of the properties or stocks is considered. Thus, if NHMFC later
sells or exchanges the shares of stock or debt instruments it acquired in the
exchange, it shall be subject to income tax on gains derived from such sale or
exchange, taking into consideration that the cost basis of the shares and debt
instruments shall be the same as the original acquisition cost or adjusted cost
basis to the NHMFC of the Receivables exchanged therefor, and that the cost
basis to Balikatan of the Receivables exchanged for stocks and the debt
instruments shall be the same as it would be in the hands of NHMFC. (Section
40(C)(5)(a) and (b) of the Tax Code)
In this connection, 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 its 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 properties transferred, or of its interest in such
properties, with a statement of the original acquisition cost/adjusted cost
basis or other basis thereof at the time of the transfer;
2.
The kind of stocks or other properties 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 properties received from the transferor;

2.
A statement of the original acquisition cost or other basis of the
properties in the hands of the transferor and the adjusted cost basis thereof
at the time of the transfer; and
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 and other property 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, permanent records in substantial
form must be kept by the taxpayers participating in the exchange, showing
the information listed above in order to facilitate the determination of gain or
loss from a subsequent disposition of stocks/properties received in the
exchange. HICSaD
Furthermore, your opinion on the following are likewise hereby confirmed:
(1)
Pursuant to Section 4.100-5(b)(1) of Revenue Regulations No. 7-95, as
amended, a change of control of a corporation by the acquisition of the
controlling interest of such corporation by another stockholder or group of
stockholders shall not be subject to output tax. Example: transfer of property
to a corporation in exchange for its shares of stock under Section 40(C)(2)
and (6)(c) of the 1997 Tax Code. Consequently, the transfer of the
Receivables by NHMFC to Balikatan will not be subject to value added tax;
(2)
The transfer of the Receivables by NHMFC to Balikatan in exchange for
common shares, redeemable preferred shares, and debt instruments shall not
be subject to donor's tax since there is no donative intent involved in the
transfer. (BIR Ruling No. 224-93 dated May 18, 1993)
(3)
The certificates of stocks to be issued by Balikatan are subject to the
documentary stamp tax at the rate of P1.00 for every P200.00, or a fractional
part thereof, of the par value of the shares issued pursuant to Section 174 of
the Tax Code, as amended by Republic Act No. 9243, which shall attach upon
issuance by the SEC of Balikatan's Certificate of Incorporation.
(4)
The documentary stamp tax due on the issuance of the Senior Debt
Instrument, Series "A" Subordinated Debt Instrument, Series "B"
Subordinated Debt Instrument and the Additional Senior and Subordinated
Debt Instruments by Balikatan shall be subject to P1.00 for every P200.00, or
a fractional part thereof, of the issue value of the debt instruments pursuant
to Section 179 of the Tax Code, as amended by Republic Act No. 9243.
However, the subsequent assignment, transfer or amendment of such debt
instruments by NHMFC shall not be subject to DST provided that there is no
increase in the amount or change in the maturity date from that of the
original instrument pursuant to Section 199(f) of the Tax Code of 1997, as
amended by Republic Act No. 9243. ADTCaI

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 is not complied
with, then this ruling shall be considered null and void. THIAaD
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) JAMES H. ROLDAN
Assistant Commissioner
Legal Service