Slide No. 1 Atty. Terence Conrad H.

Bello
D. Losses: NOLCO
34(D) NOLCO important rules (PICOP codified):
a) NOL is always available as a deduction in the hands of
the TP who sustained and accumulated the NOL,
regardless of the change in ownership (Rev. Regs. 14-01
2.2)
b) NOL is retained also if the TP who sustained and
accumulated the NOL is involved in a merger and the
same TP is the surviving entity
c) If NOL transfers from the TP who sustained and
accumulated the same to another TP via a merger,
consolidation, or business combination, and there is no
substantial change in ownership (75% rule), NOL
deductible in the hands of the transferee
d) If NOL transfers from the TP who sustained and
accumulated the same to another TP via a merger,
consolidation, or business combination, and there is
substantial change in ownership, NOL is lost
Slide No. 2 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Initial structure Sale of Target shares to A
T S/H
TARGET
NOL
T S/H
TARGET
NOL
ACQUIROR
Rev. Regs. 14-01 2.2 - change in stockholders of NOL holder
T T sh sh. .
Slide No. 3 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Ending point: T retains NOL T retains the NOL because
it is the same entity that
sustained and accumulated
the NOL, notwithstanding
that it has a new owner, A
ACQUIROR
TARGET
NOL
Rev. Regs. 14-01 2.2 - change in stockholders of NOL holder
Slide No. 4 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Initial structure Merger of T into A
Rev. Regs. 14-01 2.2 NOL holder surviving entity in merger
T
T S/H
A
NOL
T
T S/H
A
NOL
Merge
Issue A stock
Slide No. 5 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Ending structure Being the entity that
sustained and accumulated
the NOL and the surviving
entity in the merger, A gets
to keep the NOL
Rev. Regs. 14-01 2.2 NOL holder surviving entity in merger
A
T&A S/H
T assets A NOL
Slide No. 6 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Initial structure P drops down Q shares to R
in exchange for R shares
Rev. Regs. 14-01 3.12 Illustration 1 (asset drop)
P
Q
NOL
P
R
NOL
Q
Q Sh. R Sh.
Slide No. 7 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Ending point
Q retains its NOLCO
No actual change in
ownership is involved; mere
change from direct
ownership to indirect
ownership
Qs shares are held by R
on behalf of P, the original
owner
Rev. Regs. 14-01 3.12 Illustration 1 (asset drop)
P
R
NOL
Q
Slide No. 8 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Initial structure Upstream merger of Z into
Y
Rev. Regs. 14-01 3.12 Illustration 2 (upstream merger)
X
Y
NOL
Z
X
Y
NOL
Z
Merge
Surrender Z stock
Z NOL transfers to Y
Slide No. 9 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Ending point
Y retains Zs NOLCO
Prior to upstream merger, X
already indirectly owned Z
Z shares were held by Y on
behalf of X
After the merger, X now
directly owns Z (as part of Y)
Rev. Regs. 14-01 3.12 Illustration 2 (upstream merger)
X
Y
Z NOL
Slide No. 10 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Initial structure Merger of T into A
Rev. Regs. 14-01 5.2 when substantial change occurs
T
T S/H
NOL
A T
T S/H
NOL
A
Merge
A stock
NOL transfers to A
Slide No. 11 Atty. Terence Conrad H. Bello
D. Losses: NOLCO
Ending structure NOL is retained if the
former T shareholders gain
at least 75% control of A
NOL is lost if former T
shareholders do not gain at
least 75% control of A (i.e.,
substantial change in
ownership occurs)
Rev. Regs. 14-01 5.2 when substantial change occurs
A
T S/H
T NOL
A S/H