BIR Ruling

January 25, 1974 Messrs. Sycip, Salazar, Luna Manalo & Feliciano 3rd Floor, Far East Building Buendia Ave., Makati, Rizal Attention: Atty . Andres Gatmaitan Gentlemen : This refers to your letter dated January 16, 1974 requesting information as to the tax incidents of the proposed merger between People's Bank and Trust Company (PBTC) and Bank of the Philippine Islands (BPI). Prior to the merger, your client, J.P. Morgan Overseas Capital Corporation, shall become a stockholder of PBTC. casia It is represented that the merger is in compliance with the objectives laid down by the Central Bank in its "Guidelines on Increased Capitalization and Merger or Consolidation of Commercial Banks" and shall be accomplished substantially as follows: PBTC shall convey, assign and transfer to BPI all of its business, property, and assets as reflected in the Balance Sheet of PBTC as of June 30, 1973, including: 1. goodwill and trade name; 2. whatever assets not normally reflected in the Balance Sheet or might have been omitted through oversight; and 3. other assets which may have been acquired by PBTC from July 1, 1973 until the effective date of the merger. BPI shall assume 1. all of the liabilities and obligations of PBTC as reflected in PBTC Balance Sheet as of June 30, 1973; 2. other have liabilities and obligations which may have been incurred by PBTC from July 1, 1973 until the effective date of the merger; and 3. all other obligations, liabilities and undertaking of PBTC, contractual or otherwise, express or implied, actual or contingent, as of the effective date of the merger. The capital structures of BPI and PBTC as of the time of merger are as follows: cdta BPI Outstanding capital stock (P100.00 par value) P100,000,000.00 Adjusted net worth 140,463,493.00 PBTC Outstanding capital stock 53,550,000.00 (Par value P100.00) Net worth after increase of capitalization and subscription to and payment of 321,300 shares of capital stock P118,989,103.00 After the transfer by PBTC of its assets and liabilities to BPI, BPI shall issue to the stockholders of record of PBTC which include J. P. Morgan Overseas Capital Corporation shares of stock in exchange for PBTC shares which they shall surrender to BPI at the ratio of 1.85 BPI shares for every PBTC share. After the merger, PBTC shall be dissolved and the capital stock shall have increased to P184,609,000.00 at P100 par value per share. In reply to the queries now posed by you, I have the honor to inform you as follows: (a) The merger between BPI and PBTC is clearly within the purview of Section 35(c)(2) and 5(b) of the Tax Code. (b) The transfer by PBTC to BPI of all its assets and liabilities as well as the subsequent issuance by BPI of its shares to PBTC stockholders in exchange for their PBTC shares shall not give rise to the recognition of gain or loss pursuant to Section 35(c)(2) of the Tax Code. (c) The cash, if any, that shall be received by a PBTC stockholder, if resulting to a gain, shall be subject to income tax pursuant to Section 35(c)(3) of the Tax Code. (d) No gain or loss shall be recognized to BPI upon its receipt of the assets transferred by PBTC and its assumption to the liabilities, undertakings and obligations of PBTC, as well as upon the issuance by BPI of its shares of stock to PBTC stockholders who surrender their PBTC shares to BPI, pursuant to the plan of merger, pursuant to Section 35(c)(2) of the Tax Code. (e) The exchange of BPI shares with PBTC shares is not subject to the stock transaction tax pursuant to Section 195-B of the Tax Code. (f) No gift tax is payable by PBTC or BPI or PBTC stockholders upon the transactions and exchanges made pursuant to the plan of merger, no gift being actually involved. In connection with the merger, the parties to the merger must keep records of the following, and must file with their income tax returns information on the following: (a) The plan of reorganization must be adopted by each of the corporations parties thereto; and the adoption must be shown by the acts of its duly constituted responsible officers, and appear upon the official records of the corporation. Each corporation, a party to a reorganization, shall file as a part of its return for its taxable year within which the reorganization occurred a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization, including: (1) A copy of the plan of reorganization, together with a statement, executed under the penalties of perjury, showing in full the purposes thereof and in detail all transactions incident to, or pursuant to, the plan. (2) A complete statement of the cost or other basis of all property, including all stock or securities, transferred incident to the plan. (3) A statement of the amount of stock or securities and other property or money received from the exchange, including a statement of all distributions or other disposition made thereof. The amount of each kind of stock or securities and other property received shall be stated on the basis of the fair market value thereof at the date of the exchange. cdta (4) A statement of the amount and nature of any liabilities assumed upon the exchange, and the amount and nature of any liabilities to which any of the property acquired in the exchange is subject. (b) Every taxpayer, other than a corporation a party to the reorganization, who receives stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in his income tax return for the taxable year in which the exchange takes place a complete statement of all facts pertinent to the non-recognition of gain or loss upon such exchange including: (1) A statement of the cost or other basis of the stock or securities transferred in the exchange, and (2) A statement in full of the amount of stock or securities and other property or money received from the exchange, including any liabilities assumed upon the exchange, and any liabilities to which property received is subject. The amount of each kind of stock or securities and other property (other than liabilities assumed upon the exchange) received shall be set forth upon the basis of the fair market value thereof at the date of the exchange. (c) Permanent records in substantial form shall be kept by every taxpayer who participates in a tax-free exchange in connection with a corporate reorganization showing the cost or other basis of the transferred property and the amount of stock or securities and other property or money received (including any liabilities assumed on the exchange, or any liabilities to which any of the properties received were subject), in order to facilities the determination of gain or loss from a subsequent disposition of such stock or securities and other property received from the exchange. (par. 9803-B, P-H 1963 ed., p. 9611) In addition to the foregoing requirements, permanent records in substantial form must be kept by the corporations participating in the merger showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of the stock received as a consequence of the merger. cdi Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5