April 3, 1997

BIR RULING NO. 039-97

21 (d) 24 (e) (2) 000-00 039-97

Romulo, Mabanta, Buenaventura

Sayoc & De Los Angeles
30/F Citibank Tower
Paseo de Roxas, Makati City
Attention: Edmundo P. Guevarra
and
Priscilla B. Valer

Gentlemen :

This refers to your letter dated February 20, 1997 requesting, in

behalf of your client, the Philippine Central Depository, Inc. ("PCD"), for
confirmation of your opinion that the transfer of legal title to outstanding
shares of stock, without a transfer of beneficial title, from stockholders to
the PCD Nominee Corp., as nominee, and vice-versa, is not subject to the
capital gains tax imposed under Sections 21 (d), 22(a) (3), 24(e) (2) and 25(a)
(6) (C) of the Tax Code or the stock transaction tax imposed under Section
124-A of the Tax Code and the documentary stamp tax imposed under
Section 176 of the Tax Code.
It is represented that PCD is an entity licensed by the Securities and
Exchange Commission ("SEC") as a depository of, among others,
shares of stock listed and traded in the Philippine Stock Exchange ("PSE");
that its primary mandate is, among others, to introduce a scripless book-entry
system for the settlement of PSE trades, in order to address the
problem of delay, inefficiency and even fraud attending the existing paper-
based settlement procedure; that for PCD to carry out this mandate, the
shares of stock of the PSE-listed companies must first be "lodged" into
the PCD System for "immobilization"; that lodgment is the process by which
stockholders of the PSE-listed company transfer the legal title over their
shares of stock in favor of PCD Nominee Corp. ("PCD Nominee"), a
corporation wholly owned by PCD whose sole purpose is to act
as nominee and legal title holder of all shares of stock lodged
into PCD (beneficial title to the "lodged" shares remains with the lodging
stockholders); that immobilization is the process by which the share
certificates of lodging stockholders are cancelled by the Transfer Agent and a
new stock certificate covering all the shares lodged ("Jumbo Certificate")
issued in the name of PCD Nominee, in order that settlement of PSE
trades of the PSE-listed company can be effected by mere book-entry
transfer of beneficial title in the PCD System without the transfer of stock
certificates covering the traded shares; and that no consideration is paid for
the transfer of legal title to PCD Nominee.
The Corporation Code requires that all shares of stock of a corporation
must be evidenced by a certificate and a stockholder who has fully paid his
subscription has the right to demand such certificate. Thus, it is also
represented that if a stockholder wishes to withdraw his stockholdings from
the PCD System, the PCD has a procedure of "upliftment", under
which PCD Nominee will now transfer back to the stockholder the legal title to
the shares lodged in order that legal and beneficial title will once again be
consolidated in the stockholder; that under this process, the Jumbo Certificate
is surrendered to the Transfer Agent, which then issues a new stock
certificate in the name of the uplifting stockholder and a new Jumbo
Certificate for the balance; and that again, no consideration is paid for the
transfer of legal title back to the beneficial owner.
In reply, please be informed that the conveyance of the legal title over
the shares to a trustee or nominee without transfer of beneficial title and
without any consideration does not involve an actual transfer of ownership
over the shares, hence, not subject to the capital gains tax and documentary
stamp tax. Thus, your opinion that the transfer of legal title over the shares
from the lodging stockholders to PCD Nominee Corp., or
from PCD Nominee Corp. to the uplifting stockholders, is not subject to capital
gains tax or stock transaction tax and documentary stamp tax because there
is no actual transfer of ownership over the aforementioned shares of stock is
hereby confirmed. (BIR Ruling Nos. UN-258-95, 123-93, 124-93, 125-93, 127-
93, 128-93 and 129-93) However, the transfers of beneficial ownership over
the lodged shares shall be subject to capital gains tax or stock transaction tax,
as the case may be, and to documentary stamp tax.
Moreover, under Section 191 of the Documentary Stamp Tax
Regulations (Revenue Regulations No. 26), the conveyance of property to a
trustee is exempt from documentary stamp tax. Section 191 of said
Regulations provides:
"Section 191. Conveyance to trustees or from trustee to cestui
que trust, without consideration. Conveyances to a trustee without
valuable consideration, or from a trustee to a cestui que trust without
valuable consideration are not subject to tax."
 Thus, your opinion that the conveyance of the shares from the
stockholders to the nominee — PCD Nominee Corporation and versa, is not
subject to documentary stamp tax pursuant to Section
191 of Revenue Regulations No. 26, otherwise known as The Documentary
Stamp Tax Regulations, is likewise hereby confirmed.
Accordingly, the Transfer Agents of the publicly listed companies may
cancel the outstanding shares certificate in the name of the stockholders and
issue the Jumbo Certificate in the name of PCD Nominee Corporation for
immobilization. Likewise, in the event a shareholder withdraws his
stockholdings from the PCD System, the Transfer Agents shall likewise issue
a new stock certificate in the name of the uplifting stockholder and a new
Jumbo Certificate for the balance upon surrender of the original Jumbo
Certificate in order that the legal and beneficial title will once again be
consolidated in the stockholder.
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. 
aisadc

Very truly yours,

LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue
 (Transfer of Legal Title to Outstanding Shares of Stock, Without a Transfer of
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Beneficial Title, from Stockholders to the Nominee, and Vice-Versa, Not Subject
to Capital Gains Tax Nor to the Stock Transaction Tax and the Documentary
Stamp Tax , BIR Ruling No. 039-97, [April 3, 1997])