Delpher Trades Corporation vs Appellate Court

Principle/s:

-          Estate Planning as Tax Avoidance

Delpher Trades Corporation vs Appellate Court, GR L-69259, 1988

FACTS:

Delphin Pacheco and Pilar Angeles who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines were transferred to the corporation by virtue of deed of exchange for these properties. In exchanged, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the owners only owned 2,000 shares. (Estate Planning)

ISSUE:

Whether the act of estate planning illegal?

HELD:

Tax avoidance is the legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. In this case, estate planning is legal under the said principle. However; after incorporation, one becomes a stock-holder of a corporation by subscription or by purchasing stock directly from the corporation from individual owners thereof. “The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed.”

Note: (Edward Keller vs COB, 141 SCRA 1)

Stockholders may be sued by a corporate creditor to the extent of their unpaid SUBSCRIPTION.