July 19, 2013

BIR RULING NO. 278-13

Secs. 60 (B), 100 & 175 of the Tax Code of

1997; RR 13-04; BIR Ruling No. 079-10

Noritake Porcelana Mfg., Inc.

J.P. Rizal St., Concepcion, 1807
Marikina City
Attention: Mr. Tatsuya Koide
Director, CPA-USA

Gentlemen :

This refers to your letter dated December 6, 2010 requesting the exemption from
donor's tax of the sale by Noritake Porcelana Employees Retirement Plan (NPERP) of
its shares of stocks in Contempo Real Estate, Inc. cDCSET

Documents submitted disclosed that NPERP is a BIR approved private

retirement plan; that BIR Ruling No. DA(C-048)180-2009 dated April 1, 2009 was issued
to Noritake Porcelana Mfg., Inc. ruling that NPERP's sale of its shares of stocks is not
subject to capital gains tax in accordance with Section 60 (B) of the Tax Code of 1997,
as amended; that as represented, the NPERP's sale of said shares was due to the need
to generate funds to pay the separation bene ts of the 300 member-employees of
Noritake Porcelana Mfg., Inc. as a result of the cessation of the corporation's
manufacturing operations in 2008; that notwithstanding the issuance of the BIR Ruling,
the Certi cate Authorizing Registration of the stock certi cates subject of the sale has
not been issued; and that Noritake Porcelana Mfg., Inc. is now requesting for a ruling
exempting the same transaction from donor's tax.
In reply, please be informed that while the transaction is a sale by NPERP of its
shares in Contempo Real Estate, Inc., the consideration appears to be less than
adequate per veri cation with the Revenue District O ce. The book value per share of
Contempo Real Estate, Inc. was pegged at P11,262.25 or a total of P202,720,500.00
for the 18,000 shares sold by NPERP but these shares were sold at a total price of
P150,055,920.00 only. There being a substantial difference of P52,664,580.00 in the
consideration of the shares of stock sold, it is deemed to be a donation by NPERP and,
thus, subject to donor's tax pursuant to Section 100 of the Tax Code of 1997, as
amended and Revenue Regulations (RR) No. 6-2008.
Section 100 of the Tax Code of 1997, as amended, provides that:
"SEC. 100. Transfer for Less Than Adequate and Full Consideration. —
Where property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or money's worth, then
the amount by which the fair market value of the property exceeded the value of
the consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year."

Furthermore, RR No. 6-2008 provides that:

CD Technologies Asia, Inc. © 2019 cdasiaonline.com
 "SEC. 7. Sale, Barter or Exchange of Shares of Stock Not Traded
Through a Local Stock Exchange Pursuant to Secs. 24 (C), 25 (A)(3), 25 (B), 27
(D) (2), 28 (A) (7) (C), 28 (B) (5) (C) of The Tax Code, as Amended. —
xxx xxx xxx

(c.1) Determination of Selling Price. — In determining the selling price,

the following rules shall apply:cSaATC

xxx xxx xxx

(c.1.4) In case the fair market value of the shares of stock sold,
bartered, or exchanged is greater than the amount of money and/or fair market
value of the property received, the excess of the fair market value of the shares of
stock sold, bartered or exchanged over the amount of money and the fair market
value of the property, if any, received as consideration shall be deemed a gift
subject to the donor's tax under Sec. 100 of the Tax Code, as amended. "
(Underscoring supplied)

In BIR Ruling No. 079-10 dated September 23, 2010, the Land Bank of the
Philippines Employees Association (LBPEA) was required to pay donor's tax and
penalties because the selling price was less than the fair market value as de ned under
RR No. 6-2008 and LBPEA argued that the de nition of 'fair market value' under the
regulations does not conform to the acceptable meaning in actual business
transactions.
This O ce had ruled that shares of stocks sold by LBPEA should be valued at
the book value of the shares of stock, to wit:
"While we agree that the general de nition of 'fair market value' is the price
at which the property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or to sell and both having
reasonable knowledge of relevant facts, it is di cult to determine the fair market
value of shares of stocks which are not listed in the stock exchange. The
government cannot presume that the amount indicated in the deed of sale is the
fair market value. This is because transactions involving shares of stocks not
listed in the stock exchange are usually not considered as arms-length
transactions because the parties are closely related and may have shared
interests.

For this reason, RR No. 6-2008 pegged the fair market value to the book
value of the shares of stock. This is a reasonable rule as the book value
approximates the fair market value of the shares of stock."

Notwithstanding that the difference between the selling price and book value of
the shares is treated as a donation and, thus, subject to donor's tax, the deed of sale or
document of conveyance executed by NPERP over such shares of stocks is subject to
documentary stamp tax (DST) imposed under Section 175 of the same Tax Code. SCIcTD

Although Section 60 (B) of the Tax Code speci cally exempted employees' trust
from income tax, DST is viewed as a tax on the document as it is in reality a form of
excise tax. It is an excise tax upon the facilities used in the transaction of the business
separate and apart from the business itself.
All transfer of shares of stocks of a domestic corporation are subject to the DST
upon execution of the deed transferring ownership or rights thereto, or upon delivery,
assignment or endorsement of such shares in favor of another. No transfer of shares of
CD Technologies Asia, Inc. © 2019 cdasiaonline.com
 stock shall be recorded unless DST thereon has been duly paid for in accordance with
Section 201 of the Code. (Revenue Regulations No. 13-04 dated December 23, 2004)
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.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

CD Technologies Asia, Inc. © 2019 cdasiaonline.com