January 11, 1993
REVENUE AUDIT MEMORANDUM ORDER NO. 1-93
1. Scope:
This order shall govern the verification of cases involving the disposition of shares of stocks issued by a domestic corporation wherein the tax exemption of the resulting capital gains is being invoked by the taxpayer pursuant to the provision of the Philippine tax treaties.
2. Background information
There is a general pattern of transactions undertaken by taxpayers wherein the corresponding income tax is not being paid or is substantially reduced for the disposition of shares of stocks issued by a domestic corporation. The common features characterizing these are as follows:
1. There is an initial transfer or disposition of the shares of stocks by the first transferor to a resident of a treaty country. This transfer can either be in the form of tax free or deferred exchange pursuant to Section 34 of the Tax Code, or property dividend distribution, or donation, or sale, or any other mode of transfer.
2. The transfer price involved in this first transfer (hereinafter called as the "initial transfer price") is relatively low when compared...
