BIR Ruling [DA-130-03]

April 25, 2003 BIR RULING [DA-130-03] 40 (C) (2); S40103-02 Edward Keller (Philippines), Inc. Carmelray Industrial Park 1 Canlubang, Calamba Laguna Attention: Andreas U. Brechbuhl President and CEO Gentlemen : This refers to your letter dated November 5, 2002 stating Diethelm Keller Holding AG (DKHA) is a Swiss Corporation engaged in the business of trading and marketing; that DKHA is not doing business in the Philippines and has its principal office address at Muhlebachstrasse 20, CH-8008 Zurich, Switzerland; that it is the shareholder in the following domestic corporations, to wit: Edward Keller (Philippines), Inc. (Edward Keller) 100% Griffith Laboratories (Philippines), Inc. (Griffith) 50% Zurlex Property Holding Corporation (Zurlex) 40% Keller Insurance Brokers, Inc. (Keller Insurance) 100% that on October 4, 2001, DKHA and DKSAA entered into a Non-Cash Capital Contribution Agreement (Agreement) whereby DKHA made a non-cash capital contribution to DKSAA, among which contribution is its Services Asia Division; that the DKHA Services Asia Division comprises the following corporations, and holds the following number of shares therein: Name of Company No. of Shares Edward Keller 1,674,448 Keller Insurance 99,994 Griffith 270,073 Zurlex 237 that pursuant to said Agreement, DKSAA takes over from DKHA a part of its assets and liabilities namely the Services Asia Division according to the acquisition balance sheet of January 1, 2001 which shows that the assets acquired (cash/post office/bank, receivables on goods and services from group member companies, loans to group member companies, shareholding interests) amount of CHF 81,199,499.09, while the liabilities taken over (bank loans, liabilities on goods and deliveries received from group member companies, borrowings from group member companies, general reserves for business risks) stand at CHF 54,445,004.35; that the resulting surplus assets of CHF 26,754,444.74, DKHA assigned 98,505 registered shares of CHF 100 each which are regarded as fully paid up and to which its subscribes in the context of the increase of the company's share capital. In connection therewith, you now request a ruling that the transfer by DKHA, a Swiss Corporation, of its shareholdings in Edward Keller, Griffith, Zurlex and Keller Insurance to DKSAA, another Swiss Corporation, is not subject to tax since the transfer is part of a worldwide corporate reorganization and that no gain will be realized by DKHA for income tax purposes relative to the said transfer. In reply thereto, please be informed that in BIR Ruling No. 347-87 dated November 5, 1987 wherein the transaction involved the transfer of Philippines shares owned by a foreign corporation to its wholly-owned foreign subsidiary under the proposed corporate reorganization, the BIR ruled that: "In reply thereto, I have the honor to inform you that the transfer of all the outstanding shares of API consisting of 148,994 common shares of AAB to APH, its wholly-owned subsidiary in accordance with its proposed corporate reorganization which will consolidate certain operations in the South East Asia Region to APH is not subject to any Philippine tax. This ruling is based on the facts as presented. However, if upon investigation the same could not be substantiated, then this ruling shall be considered as null and void." AcDHCS Accordingly, this Office opines and so holds that the transfer by DKHA of its shareholdings in the aforesaid domestic corporations to DKSAA is in pursuance to a legitimate worldwide corporate reorganization. As the transfer was from a parent company to a wholly owned subsidiary; there is no effective transfer of beneficial ownership. Since there is no effective transfer of beneficial ownership, no gain was realized by DKHA for income tax purposes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service