COMMISSIONER OF INTERNAL REVENUE v. DOMINIUM REALTY & CONSTRUCTION CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL CTA EB NO. 1713 REVENUE, (CTA Case No. 8887) Petitioner, -versus- Present: Del Rosario, P.J., Castaneda, Jr., Uy, Fabon-Victorino, Mindaro-Grulla, Ringpis-Uban, and Manahan, ]]. DOMINIUM REALTY & CONSTRUCTION CORPORATION, Res2ondent. Promulgated: 1 NOVe~~ ~--~~~� ~ X--------------------------------------------------------------------------------------- ., DECISION RINGPIS-LIBAN, J.: Before the Court En Bane is a Petition for Review filed by petitioner1 Commissioner of Internal Rev~nue (CIR) to seek nullification of the Decision2 dated April 6, 2017 (assailed Decision), the dispositive portion thereof reads: "WHEREFORE, premises considered, the Petition for Review is GRANTED. Accordingly, the assessments issued by respondent against petitioner for taxable year 2010 covenn~ 1 Respondent in CTA Case No. 8887. 2 Rollo, CTA EB Case No.1713, pp.12-39.

DECISION CTA EB N0.1713 (CTA CASE NO. 8887) deficiency Income Tax in the amount of P86,102,942.64, VAT in the amount of P39,836,303.87 and DST in the amount of P5,669,034.20, are CANCELLED AND WITHDRAWN. SO ORDERED." and the Resolution3 dated April 17, 2017 (assailed Resolution) of the same Second Division of the Court (Court in Division) denying the CIR's Motion for Reconsideration, the dispositive portion thereof reads: "WHEREFORE, premises considered, respondent's Motion for Reconsideration is DENIED for lack of merit. SO ORDERED." THE FACTS The facts as stated in the assailed Decision4 are as follows: "Petitioner5 is a 0-omestic corporation duly organized and existing under and by virtue of Philippine laws, with business address at Allied Bank Centre, Ayala Avenue, Makati City. It is registered with the Bureau of Internal Revenue (BIR) with Certificate of Registration No. 9RC0000063594 dated January 3, 1996 issued by Revenue Region No.8- Makati City. Petitioner's primary purpose is to purchase, hold, convey, sell, lease, rent, mortgage, encumber or otherwise, deal in such real and personal property in any part of the Philippines or elsewhere, and to engage in the business of construction, building and infrastructure works, land development, subdivisions and such other related purposes as may be convenient or necessary for the transaction of the la"o/ful business of the corporation. Respondent is the duly appointed Commissioner of the BIR who has the power to decide disputed assessments, refund of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) or other laws or portions thereof, ~ 3 Rollo, pp. 41-44. 4 Citations omitted. 5 Respondent Dominium Realty & Construction Corporation ("Dominium Realty") in this case.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Quezon City. Petitioner, together with Fortune Tobacco Corporation (FTC), Parity Packaging Corporation (PPC), Northern Tobacco Redrying Co., Inc. (NTRCI) and Orecla Realty, Inc. (ORI), transferred several parcels of land in favor of Fortune Landequities and Resources, Inc. (FLRI) in exchange for the latter's shares of stocks. For its part, petitioner executed a Deed of Transfer dated February 25, 2010, in favor of FLRI, transferring its tide and ownership over its four (4) parcels of land located in Marikina City, in exchange for FLRI's shares of stock. On the same date, petitioner together with four (4) other corporations, namely, FTC, Phillip Morris Philippines Manufacturing, Inc. (PMPMI), PPC and NTRCI entered into a Deed of Transfer exchanging their assets and liabilities for the shares of stock ofPMFTC Inc.6 On April 12, 2011, petitioner filed its Annual Income Tax Return for the taxable year 2010. On June 24, 2011, petitioner received Letter of Authority (LOA) No. 047-2011-00000131 with SN: eLA201000051516 dated June 16, 2011, authorizing Revenue Officers Diannah-Lynn Karim and Marilan Dela Cruz, to conduct an examination on the books of accounts and other accounting records of all its internal revenue taxes for taxable year 2010. On September 28, 2012, petitioner received the Preliminary Assessment Notice (PAN) dated September 17,2012, with Details of Discrepancies, assessing it for alleged income tax, VAT and DST. On October 24, 2012, petitioner flied its Reply to the PAN dated October 3, 2012 with the Office of Regional Director Nestor Valeroso through the Assessment Division, Revenue Region No.8- Makati City. On January 8, 2014, petlt:t.oner received the Formal Assessment Notice (FAN) dated January 2, 2014, with attached Details of Discrepancies and Assessment Notice Nos. IT- ELA51516-1 0-14-045, VT-ELA51516-1 0-14-045, DS-ELA51516/,/ 6 Formerly known as "Tallyhoe Manufacturing Co. Inc."

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) 10-14-045, assessing it for alleged income tax in the amount of P86,102,942.64, Value-Added Tax (VAT) in the amount of P39,836,303.87 and Documentary Stamp Tax (DST) in the amount of P5,669,034.20. On February 7, 2014, petltloner ftled an administrative protest by way of a request for reconsideration dated February 2, 2014 with the Office of the Regional Director, Revenue Region No.8- Makati City. Due to respondent's inaction, petitioner filed the present Petition for Review on September 4, 2014." The CIR ftled his Answer7 on November 12,2014. The Pre-trial of the case was held on June 11, 2015.8 During the pre-trial conference, the parties were given a period of fifteen (15) days to ftle their Joint Stipulations of Facts and Issues. On June 24, 2015, the parties filed their Joint Stipulations of Facts and Issues.9 Thereafter, the Court issued the Pre-Trial Order10 dated June 30,2015. As agreed upon by the parties, the issues presented before the Court in Division are as follows: 1. Whether Dominium Realty's transfer of its four parcels of land to FLRI in exchange for the latter's common shares of stock is a tax- free exchange pursuant to the Tax Code. 2. Whether the Deed of Absolute Sale dated February 25, 2010 executed by Dominium Realty and FLRI is subject to Income Tax, VAT and DST for taxable year 2010. 3. Whether Dominium Realty is liable to pay P131,608,280.71 for the taxable year 2010 representing alleged deficiency Income Tax, VAT and DST as regards its transaction with FLRI. ~ : 7 Docket, pp. 165-172. 8 Ibid. p. 282. 9 Ibid. pp. 288-293. w Ibid. pp. 295-298.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) 4. Whether or not the right of the BIR to assess Dominium Realty for alleged deficiency internal revenue taxes had already prescribed. Trial thereafter ~nsued wherein both parties presented their respective evidence. On April 15, 2016, the CIR filed his Memorandum,11 while Dominium Realty ftled its Memorandum on May 2, 2016.12 In the Resolution13 dated May 12, 2016, the Court in Division deemed the case submitted for decision. On April 6, 2017, the Court in Division rendered the assailed Decision. On August 17, 2017, the Court in Division issued the questioned Resolution. Aggrieved, the CIR filed before the Court En Bane this Petition for Review14 on September _14, 2017. In the Resolution15 dated October 9, 2017, Dominium Realty in this case was directed by the Court En Bane to ftle its comment in this case. On November 9, 2017, Dominium Realty flied its "Comment (To the Petitioner's Petition for Review)".16 In the Resolution dated December 5, 2017,17 the Court gave due course to this Petition for Review. In view thereof, the instant case was deemed submitted for decision. THE ISSUE The main issue in this case is whether or not the Court in Division erred in granting Dominium Realty's Petition for Review, thereby cancelling the deficiency Income Tax, VAT and DST assessments issued by the CIR against Dominium Realty for taxable year 2010. . /\"" 11 Ibid., pp. 631-637. 12 Ibid., pp. 639-666. 13 Ibid. p. 668. 14 Rollo CTA EB Case No. 1713, pp. 1-10, with Annexes. 15 Ibid. pp. 50-51. 16 Ibid. pp. 52-60. 17 Ibid pp. 62-63.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) THE ARGUMENTS The CIR contends that Dominium Realty have recognized gain on exchange of assets in their financial statement as a result of the Deed of Absolute Sale between Dominium Realty and FLRI and the subscription agreement executed by Dominium Realty and Tallyhoe Manufacturing Co. Inc., to be renamed as PMFTC, Inc.; that Dominium Realty has not presented a specific ruling that applies to their transaction, hence the said gain on exchange of assets is subject to Income Tax pursuant to Section 27 of the Tax Code, VAT pursuant to Section 106, and DST pursuant to Sections 196 and 175 of the Tax Code; that since Dominium Realty failed to report their receipt of income in an amount exceeding thirty percent (30%) of that declared per VAT Return, the period of prescription is within ten (10) years after the discovery of the falsity pursuant to Section 222(a) of the Tax Code; and Dominium Realty should have secured first a BIR Ruling confirming that the transaction is a tax- free exchange under Section 40(C)(2) of the Tax Code. On the other hand, Dominium Realty argues that the CIR's arguments are mere reiterations of his previous submissions that were already addressed by the Court; that Dominium Realty and FLRI executed a Deed of Transfer on the same day when the Deed of Absolute Sale was executed; that Dominium Realty and FLRI resolved to enter into an exchange transaction, hence, they executed the "amendatory Deed of Transfer"; that the subsequent acts of the parties points to the fact that the transaction was not a sale of assets but was a tax-free exchange transaction; and, that Dominium Realty is not obliged to first secure a BIR Ruling confirming that the transaction is a tax-free exchange. THE RULING OF THE COURT ENBANC Timeliness of the Petition On April 11, 2017, the CIR received the Decision of the Court in Division. On April 24, 2017, the CIR flied a Motion for Reconsideration18 of the said Decision. On August 17, 2017, the Court in Division issued the assailed Resolution denying the CIR's motion. Said Resolution was received by the CIR on August 30,2017. ~ From receipt of the said Resolution on August 30, 2017, the CIR has until September 14, 2017 within which to flie the Petition for Review. On September 14, 2017, the CIR flied by registered mail the instant Petition for Review. Hence, this Petition for Review was timely filed. ~ 18 Docket, CTA Case No. 8887, pp.706- 708.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) The Court shall now proceed to determine the merits of the Petition for Review. After a careful review of the CIR's arguments and the records of the case, the Court En Bane finds no reason to reverse the assailed Decision and assailed Resolution of the Court in Division. The records of the case show that the Court in Division had fully and exhaustively resolved the issues raised in the petition.. The Court J?n Bane notes that the arguments presented herein are a mere rehash, in fact, quoted verbatim, of the arguments offered by the CIR in his Answer and Memorandum before the Court in Division. Furthermore, the CIR failed to state any specific error committed by the Court in Division in the assailed Decision and Resolution. Nonetheless, the Court En Bane shall pass upon petitioner's arguments. The assessments on deficiency Income Tax, deficiency VAT and deficiency DST should be cancelled The CIR insists that the deficiency Income Tax assessment in the amount of P86,102,942.64 should be upheld since petitioner recognized a gain on exchange of assets�� in its 2010 Financial Statements in the amount of P183,144,371.00. Consequendy, petitioner is also liable to pay deficiency VAT in the amount of P39,836,303.87, and deficiency DST in the amount of P5,669 ,034.20. This argument is without merit. An in depth examination of the transactions involved in this ca'se shows that they cannot be considered sales of assets of the subject corporation but merely stock subscriptions. Hence, no gain was derived from the transactions. This was apdy discussed in the assailed Decision: 19 "Section 40(C) (2) of the 1997 NIRC, as amended, provides as follows: "SEC. 40. Determination of Amount and Recognition ofGain or Loss. - XXX XXX XXX (C) Exchange ofProperry.- (1) General Rule. - Except as herein provided, upon the sale or exchange of property, the / 19 Decision, pp. 16 -24, Citations omitted.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) entire amount of the gain or loss, as the case may be, shall be recognized. (2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation - (a) A corporation, which is a party to a merger or consolidation, exchanged property solely for stock in a corporation, which is a party to the merger or consolidation; or (b) A shareholder exchanges stock in a corp.oration, which is a party to the merger or consolidation, solely for the stock of another corporation also a party to the merger or consolidation; or (c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securltles in such a .., corporation, solely for stock or securities in another corporation, a party to the merger or consolidation. No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property." (Emphasis supplied) The term "control" is defined as "ownership of stocks in a corporation possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote. From the above provision, the requisites for the non- recognition of gain or loss are: (a) the transferee is a corporation; (b) the transferee exchanges its shares of stock for property/ies of the transferor; (c) the transfer is made by a person, acting alone or together with others, not exceeding four (4) persons; and, (d) as a result of the exchange the transferor, alone or together with others, not exceeding four (4), gains control of the transferee. /Y

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) After a ca.reful study and analysis of the case, the Court found petitioner's exchange transactions with FLRI and PMFTC Inc. satisfied all of the above requisites. 1.1 Tax-free exchange with FLRI As can be gleaned from the General Informal Sheet, filed by FLRI with the SEC on June 3, 2010, FLRI is a domestic corporation. Records show that petitioner, together with FTC, PPC, NTRCI, and ORI, transferred several parcels of land in exchange for FLRI's shares of stocks. Petitioner, for its part, transferred its title and ownership over the following four (4) parcels of land, i~ exchange for shares in FLRI as evidenced by the Deed of Transfer executed by petitioner and FLRI on February 25, 2010: TCTNo. Area Book Value Fair Value Difference Between Book (Sq. M.) P325,348.91 Value and Fair Value N-30568 17,512 258,998.84 P78,804,000.00 N-34155 29,209,500.00 p 154,976,152.25 N-341156 6,491 P584,347.75 36,211,500.00 N-34157 8,047 11,335,500.00 TOTAL 2,519 p 155,560,500.00 FLRI has an authorized capital stock of P96,000,000.00 consisting of 960,000 common shares with a par value of one hundred pesos (Pl 00.00) per share. The transferors are the existing shareholders of FLRI prior to the exchange. The capital structure of FLRI prior to the exchange is as follows: Subscriber No. ofShares % of Ownership Amount Subscribed Fortune Tobacco 83,575 34.8222% Amount Paid 8,357,500 2,089,375 Corporation 7,380 3.0749% 3,615 1.5062% 738,000 184,5000 Parity Packaging Corp 361,500 90,375 1,430 0.5958% Dominium Realty & 143,000 35,750 ��"t 59.99989% Construction Corporation 0.0004% 14,400,000 3,600,000 144,000 0.0004% 100 100 Northern Tobacco 1 0.0004% 100 100 1 0.0004% 100 100 Redrying Co., Inc. 1 0.0004% 100 100 1 100 100 Orecia Realty, Inc. 1 100% P24,000,500 p 6,000,500 Harry C. Tan 240,005 Lucio K. Tan Christopher Nelson Varinia ELero Raymond Miranda Total

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) The aforesaid capital structure reveals that the transferors are the controlling stockholders of FLRI by owning 99.998% of its total voting stocks. After the completion of the exchange, the capital structure of FLRI is as follows: Subscriber No. ofShares % of Ownership Amount Subscribed Fortune Tobacco 334,295 34.8224% 33,429,500 Corporation Parity Packaging Corp 29,522 3.0752% 2,952,200 0.5960% 572,200 Northern Tobacco Redrying 5,722 Co., Inc. Dominium Realty & 14,459 1.5062% 1,445,900 Construction Corporation Orecia Realty, Inc. 575,997 59.9997% 57,599,700 0.0001% 100 Harry Tan 1 0.0001% 100 0.0001% 100 Lucio Tan 1 0.0001% 100 0.0001% 100 Chris Nelson 1 100% p 96,000,000 V ariniaElero 1 R. Miranda 1 Total ... 960,000 It can be gleaned from the above tables that petitioner's number of shares increased from 3,615 to 14,459, which resulted in an increase of 10,844 common shares. These 10,844 shares are evidenced by the Subscription Agreement between petitioner and FLRI. Also presented is the Share Certificate from FLRI, which was signed on June 10, 2010, certifying that petitioner is the owner of 14,459 shares. The result of the transfer of assets in exchange for new additional shares and payment of unpaid original subscriptions of stock is that the transferors continue to collectively control FLRI by owning 99.9995% of its total voting stocks. 1.2 Tax-free exchange with PMFTC Inc. XXX XXX XXX Petitioner, together with four (4) other corporations, namely, FTC, PMPMI, PPC and NTRCI exchanged assets and liabilities for the shares of stock of PMFTC, Inc. which resulted to gaining control of the latter/

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) As indicated in the Deed of Transfer entered into by petitioner and PMFTC Inc. and in the Application and Joint Certification or BIR Form No. 1927 filed for the subject transactions, petitioner's contributions to the exchange consisted of the following: Transferor/ ... Declaration Original/ Higher of Transfer Registered Adjusted Owner Nature Tax Basis Zonal Value or Value No. Assessed Value (value of in case of Land; Transferee Higher of -shares Assessed Value received in or FMV in case the of exchange) improvements 1) Real Property E-0018-108012/E- P1,699,406.09 P29,958,000.00 P237,000.00 Dominium Realty & 00180126612/E- Construction Corp. 0018-125813 Original/ Transfer Value [value of Building Nature Investee Adjusted Transferee-shares Transferor/ Basis received in the exchange] Registered Company Owner P564,347.75 P1 ,238,000.00 ,_ and 2) Shares ofStock Dominium Realty & Common Fortune Construction Corp. Shares Landequities Resources, Inc. 3) Others Transferor/ Nature Investee Original/ Transfer Value [value of Company Adjusted Transferee-shares Registered Prepaid Basis received in the exchange Expenses P444,934.75 Owner P4,000.00 Dominium Realty & Construction Corp. With the transfer, petitioner's original subscription of 370 shares with par value of P370,000.00 increased to 1,480 shares with par value of P1,480,00.00. Petitioner presented the Share Certificate from PMFTC, Inc., signed February 25, 2010, certifying that petitioner is the owner of 1,480 Class "A" common shares. Prior to the transfer, petitioner together with the other four (4) transferors are the controlling stockholders of PMFTC Inc. by owning 99.995% of the voting stocks ofPMFTC Inc.: Subscriber No. ofVoting % of Ownership Amount Shares in Voting Shares Subscribed Fortune Tobacco 12:3,977 p 123,977,000.00 Amount Paid Corporation 49.5936% P30,994,250.00

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) Philip Moris Philippines 124,988 49.9980% 124,988,000.00 31,247,000.00 5..35 0.2140% 535,000.00 133,750.00 Parity Packaging 370 0.1480% 370,000.00 92,500.00 Corporation 105 0.0420% 105,000.00 26,250 Dominium Realty & 1 0.0004% 1,000.00 1,000.00 Construction Corporation 1 0.0004% 1,000.00 1,000.00 1 0.0004% 1,000.00 1,000.00 Northern Tobacco 1 0.0004% 1,000.00 1,000.00 1 0.0004% 1,000.00 1,000.00 Redrying Co., Inc. 1 0.0004% 1,000.00 1,000.00 1 0.0004% 1,000.00 1,000.00 Lucio Tan 1 0.0004% 1,000.00 1,000.00 1 0.0004% 1,000.00 1,000.00 Carmen Tax 1 0.00045 1,000.00 1,000.00 ..,1 0.0004% 1,000.00 1,000.00 Harry Tan 249,986 100.0000% P249,986,000.00 P62,504,750.00 Lucio K. Tan Michael Tan Chris Nelson Douglas Worth Mitchell Gault Raymond Miranda Varinia Elero Vincent Nguyen Total After the transfer, the transferor continued to collectively control PMFTC Inc. by owning 99.9988% of its total voting stock as shown below: Subscriber No. of Voting % of Ownership Amount Subscribed Shares in Voting and Paid Shares Fortune Tobacco Corporation 495,854 49.5954% p 495,854,000.00 499,895 49.9995% 499,89 5,000.00 Philip Morris Philippines 0.2140% 2,140,000.00 2,140 0.1480% 1,480,000.00 Parity Packaging Corporation 1,480 0.420% 420,000.00 Dominium Realty & 420 0.0001% 1,000.00 Construction Corporation .. , 1 0.00015 1,000.00 1 0.0001% 1,000.00 Northern Tobacco Redrying Co., 1 0.0001% 1,000.00 1 0.0001% 1,000.00 Inc. 1 0.0001% 1,000.00 "1 0.00015 1,000.00 Lucio Tan 1 0.0001% 1,000.00 1 0.0001% 1,000.00 Carmen Tan 1 0.0001% 1,000.00 1 0.0001% 1,000.00 Harry Tan 1 100.0000% p 999,800,000.00 999,800 Luicio K. Tan Michael Tan Chris Nelson Douglas Worth Mitchell Gault Raymond Miranda Varinia Elero Vincent Nguyen Total In fine, petitioner was able to sufficiently prove that the subject exchange transactions are tax-free pursuant to Section 40 (C) (2) of the NIRC of 1997, as amended~

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) Moreover, as correctly pointed out by petitioner, the subject transactions are in the nature of stock subscription and not sales of assets. xxx In the instant case, petitioner entered into an exchange transaction with FLRI, whose shares of stocks were, thereafter, assigned to PMFTC Inc. Thus, there was no sale since petitioner's assets were only transformed into another form of asset. The assets merely changed from land, building, etc. to one of an intangible asset - shares of stock. Since the subject transactions do not constitute sales, it necessarily follows that the same are not subject to income tax. As stated in the Details of Discrepancies, the basis of respondent in assessing petitioner was derived from the latter's own declaration contained in the Audited Financial Statements recognizing "Gain on Exchange of Assets" as part of its "Accumulated Profit" account. Petitioner reported "Gain on the Exchange of Assets" not to recognize income but only to present the fair value of its assets as of a certain period in accordance with the Philippine Accounting Standards (PAS) 16. This was disclosed in Notes 7 and 12 to the AFS, where for purposes of booking up the shares of stock received on account of the transfer of assets, such shares were valued at fair market value of the assets Oand, building) given � up. What was compared for purposes of determining the "gain" was the historical cost of the assets Oand, building) given up as against the fair market value of the same. This is mere appraisal increase in the recorded value of the asset given up in the exchange and not actual income, as when the shares of stocks received in the exchange have higher value than that of the asset given up. Even assuming that the subject transactions are taxable, petitioner even suffered loss if the appraised value of the assets given were compared against the par value of the shares of stocks acquired. The assessed "Gain on Exchange of Assets" is merely a theoretical gain considering that petitioner did not actually or constructively receive said gain. Though reflected in petitioner's books as gain, it is, however, an unrealized gain for purposes of computing the income tax. In order that the same may be subjected to income tax, such income must be realized or received during the taxable year. : /V

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) Clearly, petitioner"'s transfer of assets in exchange for shares in FLRI and PMFTC Inc. qualifies as tax-free exchanges and need not require prior BIR ruling in order that the same may be exempted from income tax. Accordingly, respondent's deficiency income tax assessment on the alleged "Gain on Exchange of Assets" ofP183,144,371.00 should be cancelled." In the computation of deficiency income tax liability of Dominium Realty for taxable year 2010, the CIR disallowed Dominium Realty's tax credits amounting to P392,227.78 on the basis that the same were carried-over and credited against the taxes due for the succeeding year pursuant to Section 76 of the NIRC of 1997, as amended. The Court En Bane agrees with the finding of the Court in Division that it is improper for the CIR to deduct the amount of P392,227.78 because any tax benefit derived by petitioner from the carry-over thereof may be claimed in the succeeding year 2011. Hence, the deficiency Income Tax assessments should be cancelled. Anent the deficiency VAT assessment in the amount of P39,836,303.87, the Court En Bane finds the same improper because the transfers of properties in exchange for controlling shares in FLRI and PMFTC, Inc. do not constitute sales transactions but merely stock subscriptions. As previously stated, the subject transactions do not constitute sales. Hence, the deficiency VAT assessment should likewise be cancelled. As regards the deficiency DST in the amount of P5,669,034.20, Dominium Realty was assessed for the said tax liability because it did not present a specific BIR ruling as to the non-taxability of its exchange transactions with FLRI and PMFTC, Inc. Bane The Court En agrees with the finding of the Court in Division that the deficiency DST assessment on Dominium Realty should be cancelled. The need to secure a prior BIR ruling is not a requirement to avail the tax exemption. As correctly stated in the assailed Decision:20 'Section 199 of the NIRC of 1997, as amended by Section 9 of Republic Act No. 9243, explicitly exempts from DST transfers of properties by virtue of tax-free exchanges under Section 40(C) (2) of the NIRC of 1997, as amended, to wi~ 2o Decision, pp. 26-27, Citations ~tted.

DECISION CTA EB NO. 1713 (CTA CASE NO. 8887) "SEC. 199. Documents and Papers Not Subject to Stamp Tax.- The provisions of Section 173 to the contrary notwithstandirtg, the following instruments, documents and papers shall be exempt from the documentary stamp tax: XXX XXX XXX (m) Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code of 1997, as amended.' The exemption on transfer of property pursuant to Section 40(C) (2) referred to above pertains to the DST due on the deed transferring the property. � On the oth,er hand, the original issuance of shares of stocks in exchange of the said property is subject to the DST pursuant to Section 174 of the NIRC of 1997, as amended. However, it is the transferee corporations, i.e., FLRI and PMFTC Inc., which are liable to pay the DST, and not the transferor-petitioner. For easy reference, Section 174 is quoted herein below: 'SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on organization, reorganization or for any lawful purpose, of shares of stock by an association, company or corporation, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case of the original issue of shares of stock without par value, the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for issuance of such shares of stock: Provided, further, That in the case of stock dividends, on the actual value represented by eath share.' Lastly, the Court En Bane finds unnecessary to discuss the issue of prescription considering that based on the above finding, Dominium Realty is exempt from paying income tax, VAT, and DST. There being no new matters or issues raised in the Petition for Review before this Court and there being no reversible error committed by the Court in Division, this Court finds no cogent reason to disturb the assailed Decision and Resolution. ~

DECISION ..., CTA EB NO. 1713 (CTA CASE NO. 8887) WHEREFORE, premises considered, the Petition for Review is DENIED for lack of merit. The assailed Decision dated April 6, 2017 and the assailed Resolution dated August 17, 2017 are AFFIRMED. SO ORDERED. ~. ~ ~~~' MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR: ~~~C-~o-..~ 2 E~.UY Associate Justice J6'ANITO c. CASTANEDA,,R. ~ N,M~~GtvJ4 Associate Justice CIELITO N. MINDARO-GRULLA Associate Justice C~/'. CATH~RINE T. MANAHAN Associate Justice CERTIFICATION ~. Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice �. ,