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BIR Ruling DA - (C-045) 15-08 Shares Conversion
BIR Ruling DA - (C-045) 15-08 Shares Conversion
BIR Ruling DA - (C-045) 15-08 Shares Conversion
Gentlemen :
This refers to your letter dated July 21, 2008 requesting on behalf of your
client, Sumifru Singapore Pte. Ltd. ("SFS"), for confirmation of your opinion as
follows: EHDCAI
2. SFS did not realize any income by the conversion of its UBC preferred
shares to common shares because SFS merely changed the form of its
shareholdings in UBC and there was no change in its proportionate
interest in UBC; and
"The conversion of the P/S for C/S, at par for par, in line with the
conversion feature of the P/S, shall not be subject to capital gains tax since the
holders thereof merely change the form of their shareholdings from preferred
to common shares and they do not realize any gain or economic benefit
therefrom. HESIcT
Since SFS merely changed the form of its shareholdings in UBC through the
conversion of its preferred shares to common shares, SFS did not realize any gain or
economic benefit therefrom. Accordingly, the conversion of UBC preferred shares
held by SFS to common shares is not be subject to capital gains tax imposed under
Section 27 (D) (2) of the Tax Code, as amended. cADEHI
2. SFS will not be subject to any tax because it did not realize any income
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from the conversion of its preferred shares to common shares, considering that, there
was no change in the proportionate interest of SFS after the conversion.
The above view is analogous to that adopted by the Supreme Court in the case
of Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and
A. Soriano Corporation (G.R. No. 108576, January 20, 1999), concerning the
conversion of common shares to preferred shares, to wit:
Hence, SFS did not realize any income by the conversion of its UBC preferred
shares to common shares because SFS merely changed the form of its shareholdings
in UBC and there was no change in its proportionate interest in UBC.
3. Lastly, the conversion of the preferred shares to common shares shall not
be subject to DST imposed under Section 174 of the Tax Code of 1997, as amended.
In a prior BIR ruling, it was opined that the reclassification of shares does not partake
of the issuance of original shares of stock, hence, the same is not subject to the
documentary stamp tax imposed under Section 174 of the Tax Code of 1997 (BIR
Ruling DA-406-03 dated November 10, 2003; BIR Ruling 158-98 dated November 10,
1998). ECaITc
Since the new stock certificates to be issued to SFS pertained to the conversion
of its preferred shares to common shares, the said issuance shall not be subject to DST
because it does not pertain to an issuance of original shares of stock. aDHScI
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 as represented are
different, then this ruling shall be considered null and void. aSTHDc
By:
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