BIR Ruling [DA-026-97]

January 15, 1997 BIR RULING [DA-026-97] Castro & Carag Law Offices Suite 6 B, Eisenhower Condominium No. 7 Eisenhower St., 1500 Greenhills, San Juan Metro Manila Attention: Atty . Othelo C . Carag Gentlemen : This refers to your letter dated November 21, 1996 stating that Mactan Power Corporation (Mactan), Mabuhay Holdings Corporation (Mabuhay) and East Asia Power Corporation (East Asia) are corporations duly organized and existing under Philippine laws; that Mabuhay is the absolute owner of Thirty-One Million Two Hundred Fifty Thousand (31,250,000) unlisted common shares of stock of Mactan ("Subject Shares") with a par value of One Peso (P1.00) per share or a total par value of Thirty-One Million Two Hundred Fifty Thousand Pesos (P31,250,000.00), which shares Mabuhay acquired for Thirty-One Million Two Hundred Fifty Thousand Pesos (P31,250,000.00); that Mabuhay has also subscribed to Sixty-Six Million Seventy Thousand Five Hundred Thirty-Seven (66,070,537) common shares of stock of Mactan, with an aggregate par value of Sixty-Six Million Seventy Thousand Five Hundred Thirty-Seven Pesos (P66,070,537.00) ["Subject Subscription Rights"]; that Mactan has filed an application with the Securities and Exchange Commission for the increase in its authorized capital stock in order that it can issue the additional shares subscribed; that Mabuhay intends to sell or assign to East Asia the Subject Shares for a total consideration of P45,000,000.00 or with a premium in the amount of P13,750,000.00; and that Mabuhay likewise intends to sell or assign to East Asia the Subject Subscription Rights for a total consideration of P95,320,537.00 or with a premium in the amount of P29,250,000.00. Based on the foregoing , you now request confirmations of your opinion that 1. The premium in the amount of P13,750,000.00 on the assignment of Subject Shares is subject to final capital gains tax in the amount of P2,740,000.00; and 2. The premium in the amount of P29,250,000.00 of the Subscription Rights is subject to a corporate tax of 35%. In reply, please be informed that under Section 24 (e) (2) (A) of the Tax Code, as amended, net capital gains realized during each taxable year from sale or exchange or other disposition of shares of stock not traded through a local exchange shall be subject to a tax of 10%, if the gain is not over P100,000.00 and 20%, if the gain is over P100,000.00. In the case of unlisted shares, the shares shall be valued at their book value nearest the valuation dated. The book value of these unlisted shares of stock be prima facie, considered as their fair market value. (Revenue Regulations No. 2-82) Such being the case, your opinion that the premium in the amount of P13,750,000.00 on the assignment by Mabuhay to East Asia of Subject Shares is subject to 20% final capital gains tax or the amount of P2,740,000.00 is hereby confirmed. (BIR Ruling No. 221-86 dated October 17, 1986) Likewise, this Office confirms your opinion that the premium in the amount of P29,250,000.00 of the Subscription Rights is subject to the corporate tax of 35% pursuant to Section 24(a) of the Tax Code, as amended. (BIR Ruling No. 019-91 dated February 24, 1991) cdll This ruling is being issued on the basis of the foregoing representation. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)