August 3, 2012

BIR RULING NO. 515-12

Sec. 40 (C) (2) and (6) (c), 1997 NIRC;
000-00
SyCip Salazar Hernandez & Gatmaitan
SyCipLaw Center, 105 Paseo de Roxas, Makati City
Attention: Attys. Hector M. de Leon, Jr., Vicente D. Gerochi IV,
Melyjane G. Bertillo and Bryan Dennis G. Tiojanco
Gentlemen :
This refers to your letter dated February 25, 2011 requesting on behalf of your
client, UEM Development Phils., Inc. (UDPI) for a certification or ruling that the
exchange by Henry Sy, Jr.'s shares of stock in One Taipan Holdings, Inc. (OneTaipan)
and Robert Coyiuto, Jr.'s shares in Pacifica21 Holdings, Inc. (Pacifica21) with UDPI
is a tax-free exchange under Section 40 (C) (2) and (6) (c) of the National Internal
Revenue Code (NIRC) of 1997, as amended.
Documents submitted show that UDPI (now Synergy Grid & Development
Phils., Inc. with TIN 000-593-240-000) is a domestic corporation duly registered with
the Securities and Exchange Commission (SEC) under Company Reg. No. 41376; that
it has an original authorized capital stock of Fifty Million Pesos (P50,000,000.00)
divided into Fifty Million (50,000,000) shares with a par value of One Peso (P1.00)
per share; that the incorporators of the corporation with their corresponding shares
subscribed and paid-up are as follows:
Name
Henry Sy, Jr.
East Fleming Holdings Corp.
United Engineers (Malay) Berhad
Malayco, Inc.
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No. of
Shares

Amount
Subscribed

Percentage of
Ownership

23,285,740
22,500,000
1,472,477
1,077,520

23,285,740.00
22,500,000.00
1,472,477.00
1,077,520.00

47.07%
45.49%
2.98%
2.18%

Philippine Taxation Encyclopedia 2014

Lucia Spakowski
PCD Nominee Corp.
Berkley M. Luhman
George T. Scholey
A.R. Garcia & Co., Inc.
Francisco Ortigas Securities, Inc.
Vicente Goquilay & Co., Inc.
John W. Spakowski
Equitable Securities Phils., Inc.
Anselmo Trinidad & Co., Inc.
Phil. Remnants Co., Inc.
Abla Baddour Assad
Lora Enterprises
R.H. Machado & Co., Inc.
Edward Henry
Ngo Tiong Kaw
Federation Securities Corp.
Others (133 remaining stockholders)
Total

100,000
82,200
58,200
42,900
40,400
38,000
31,000
30,000
27,000
26,200
21,000
20,400
20,000
20,000
20,000
20,000
18,000
514,963

49,466,000
=======

100,000.00
82,200.00
58,200.00
42,900.00
40,400.00
38,000.00
31,000.00
30,000.00
27,000.00
26,200.00
21,000.00
20,400.00
20,000.00
20,000.00
20,000.00
20,000.00
18,000.00
514,963.00

49,466,000.00
=========

0.20%
0.17%
0.12%
0.09%
0.08%
0.08%
0.06%
0.06%
0.05%
0.05%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
0.04%
1.04%

100.00%
======

that UEM increased its authorized capital stock from Fifty Million Pesos
(P50,000,000.00) divided into Fifty Million (50,000,000) common shares with a par
value of One Peso (P1.00) per share to Two Hundred Fifteen Million Pesos
(P215,000,000.00) divided into One Hundred Fifty Million (150,000,000) common
shares at a par value of One Peso (P1.00) per share and Sixty-Five Million
(65,000,000) non-voting preferred shares at a par value of One Peso (P1.00) per share;
that Henry Sy, Jr. (TIN 106-215-722) is the registered owner of the following shares
of stock in OneTaipan, to wit: (* trust shares)
CITcSH

Nature of
Property
Stocks
Stocks
Stocks
Stocks
Stocks
Stocks
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Stock
Cert. No.
1
2
3
4
5
6

No. of
Shares
1,999,996
1
1
1
1
2,917,000

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Acquisition Cost
(in Pesos)

Book Value
(as of December
31, 2010)

199,999,600.00
100.00*
100.00*
100.00*
100.00*
3,500,400,000.00
Philippine Taxation Encyclopedia 2014


3,700,400,000.00
=============

Total

P2,052,498,940.00
==============

that Roberto Coyiuto, Jr. (TIN 103-728-734) is the owner of shares of stock in
Pacifica21, described as follows:
Nature of
Property

Stock
Cert. No.

Stocks

No. of
Shares

Acquisition Cost
(in Pesos)

51,252,375

Book Value
(as of December
31, 2010)

5,125,237,500.00

P727,835,626.00

the above-named assignors executed separate Deeds of Assignment dated February

16, 2011 in favor of UDPI whereby they will transfer to the latter their properties in
exchange for 100,000,000 shares of stock of UDPI broken down as follows:
Name of
Stockholder

No. of UDPI
shares to be issued

Henry Sy, Jr.

Robert Coyiuto, Jr.

63,630,000
36,370,000

100,000,000
==========

Total

and that as a result of the transfer, Henry Sy, Jr. will gain control of UDPI by owning
58.15% of the total voting stocks of the said corporation while Roberto Coyuito, Jr.
will own 24.33% as follows:
IHCacT

Name

No. of
Shares

Henry Sy, Jr.

86,915,740
Roberto Coyiuto, Jr.
36,370,000
East Fleming Holdings Corp.
22,500,000
United Engineers (Malay) Berhad 1,472,477
Malayco, Inc.
1,077,520
Lucia Spakowski
100,000
PCD Nominee Corp.
82,200
Berkley M. Luhman
58,200
George T. Scholey
42,900
A.R. Garcia & Co., Inc.
40,400
Francisco Ortigas Securities, Inc.
38,000
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Amount
Subscribed

Percentage of
Ownership

86,915,740.00
36,370,000.00
22,500,000.00
1,472,477.00
1,077,520.00
100,000.00
82,200.00
58,200.00
42,900.00
40,400.00
38,000.00

58.15%
24.33%
15.05%
0.99%
0.72%
0.07%
0.05%
0.04%
0.03%
0.03%
0.03%

Philippine Taxation Encyclopedia 2014

Vicente Goquilay & Co., Inc.

31,000
John W. Spakowski
30,000
Equitable Securities Phils., Inc.
27,000
Anselmo Trinidad & Co., Inc.
26,200
Phil. Remnants Co., Inc.
21,000
Abla Baddour Assad
20,400
Lora Enterprises
20,000
R.H. Machado & Co., Inc.
20,000
Edward Henry
20,000
Ngo Tiong Kaw
20,000
Federation Securities Corp.
18,000
Others (133 remaining stockholders) 514,963

Total
149,466,000
=========

31,000.00
30,000.00
27,000.00
26,200.00
21,000.00
20,400.00
20,000.00
20,000.00
20,000.00
20,000.00
18,000.00
514,963.00

149,466,000.00
===========

0.02%
0.02%
0.02%
0.02%
0.02%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.34%

100.00%
=======

In support of your request, you submitted to this Office the following

documents: 1) Duly notarized Application and Joint Certification (BIR Form 1927); 2)
Proof of payment of the processing and certification fee; 3) Original copy of the
Deeds of Assignment dated February 16, 2011; 4) Certified true copies of the
Amended Articles of Incorporation and By-Laws of UDPI; 5) Copies of the stock
certificates with the corresponding certification from the Corporate Secretaries of One
Taipan and Pacifica21 (issuing corporations) that they are genuine and faithful
reproduction of the original certificates of stock; 6) Original copies of the
Certification of cost of acquisition of the subject properties; 7) Sworn Certification
that UDPI did not assume any liability upon the exchange of shares with the issuing
corporations; 8) Special Power of Attorney (SPA) naming, constituting and appointing
Attys. Vicente D. Gerochi IV, Mark O. Vergara and SyCip Salazar Hernandez &
Gatmaitan to be the parties attorneys-in-fact; 9) Copy of the proof of payment of DST
on original issuance in the amount of P500,000.00; 10) Certified true copies of the
Certificate of Filing of the Amended Articles of Incorporation and By-Laws of UDPI;
11) Certified true copies of the Audited Financial Statements of the issuing
corporations and UDPI for 2010; 12) Copies of the corporate secretaries sworn
certifications as to the outstanding capital stock of the issuing corporations; 13)
Certified true copy of the General Information Sheet (GIS) of UDPI for 2010; and 14)
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 a
property is transferred to a corporation by a person, in exchange for stock in such a
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Philippine Taxation Encyclopedia 2014

corporation of which as a result of such exchange, said person, alone or together with
others, not exceeding four persons, gain 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. In short,
combining all the shares to be received by the transferors, the same should total to at
least 51% of the voting power of all classes of stocks of transferee corporation entitled
to vote.
ETDSAc

Applying the afore-quoted provision it is clear that with the exchange of the
shares of Henry Sy, Jr. alone, he already gains control of UDPI, as he acquires 58.15%
of the outstanding capital stocks or the total voting power of all classes of stocks
entitled to vote. Hence, no gain or loss shall be recognized with respect to the transfer
of shares by Henry Sy, Jr. in exchange for shares of stock of the transferee
corporation. There is no need to combine the shares of Henry Sy, Jr. with that of the
other transferor to determine the 51% stock ownership because, as aforestated his
shares alone are more than 51% of the total voting power of all classes of stocks of
UDPI entitled to vote. Accordingly, the transfer of Roberto Coyiuto, Jr. shall be
treated as a separate transfer subject to capital gains tax under Section 24 (C) of the
Tax Code of 1997, as amended and documentary stamp tax under Section 175 of the
same Code.
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 Henry Sy, Jr. later sells or exchanges 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 transferors of the properties exchanged therefor; and that the cost basis to
the transferee of the properties exchanged for stocks shall be the same as it would be
in the hands of the transferors. [Sec. 40 (C) (5) (a) and (b) of the 1997 Tax Code]
AaEDcS

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
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Philippine Taxation Encyclopedia 2014

hereunder mentioned:
A. The assignor Henry Sy, Jr. 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 properties he transferred, or of his 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 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 properties received from the

transferor;
CTaSEI

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 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 assignors and UDPI shall enclose
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Philippine Taxation Encyclopedia 2014

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.
cAHITS

It is required that within ninety (90) days from receipt of this ruling, the parties
to the transaction must submit to the Law Division, Bureau of Internal Revenue, a
certified true copy by the Corporate Secretary of duly annotated Certificates of Stock,
in respect of the transferred shares of stock of transferee corporation.
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 Henry Sy,
Jr. of his shares of stock to UDPI is not subject to DST under Section 175 of the Tax
Code of 1997, as amended.
However, the shares to be issued by UDPI 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.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES
Commissioner
Bureau of Internal Revenue
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Copyright 2015

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Philippine Taxation Encyclopedia 2014