PRC junks share-swap deal with JTH Davies

The Philippine Racing Club Inc. (PRCI) has decided to disengage the property for share swap agreement it entered into with subsidiary JTH Davies Holdings Inc. after the Bureau of Internal Revenue issued a new ruling that imposes a  tax on the proposed transaction.

The proposed deal would have involved the issuance by JTH Davies of 795.818 million shares to PRCI in exchange for the latter’s 21-hectare race track in Sta. Ana, Makati.

PRCI president Solomon Cua said the company’s decision not to push through with the swap was prompted by a letter from the BIR dated July 15, 2008 informing PRCI that value-added tax will be imposed on the share-swap transaction since it is treated as a sale. 

“This letter which effectively revoked or amended the previous ruling thus left PRCI with no recourse but to discontinue the transaction in accordance with the condition attached to the approval by the PRCI board and stockholders of the swap transaction,” Cua said.

Cua said he was surprised by the BIR’s ruling as it was contrary to the agency’s decision dated June 12, 2007 confirming that the transfer of the Sta. Ana Park property to JTH in exchange for JTH shares is not subject to  income tax, capital gains tax, expanded withholding tax, VAT, donor tax and documentary stamps as provided under Sec. 40 (c) (2) of the National Internal Revenue Code.

Cua said the Department of Finance wrote the BIR informing the latter that minority stockholders of PRCI have asked for the revocation of the tax exemption previously accorded the transaction.

Minority shareholders of PRCI have opposed the share swap transaction on the ground that it is disadvantageous to the company.

Cua said accounting firm SGV & Co. is now preparing a position paper to the BIR to respond to all allegations thrown against PRCI.

He has also urged the BIR to come out with a clear set of rules and ensure fairness in all dealings with corporations. “We want fairness. If the BIR has a new position we are not aware of, then they should come out with rules that are much clearer. This should be implemented fairly to every single taxpayer, ” Cua said.