BIR Ruling [DA-134-05]

April 7, 2005 BIR RULING [DA-134-05] 40 (c) (2);S-40-034-2004 SGV & Co . 6760 Ayala Avenue Makati City Attention: Atty. Luis Jose P. Ferrer Partner, Tax Services Gentlemen : This has reference to your letter dated January 25, 2005, requesting for an amendment and/or modification of BIR Ruling No. S-40-034-2004 dated November 24, 2004 which we issued in response to your request for confirmation of your opinion that the merger of Penpro, Inc. (PENPRO) and Rockpenpro, Inc. (ROCKPENPRO) with PENPRO as the surviving corporation is considered a tax-free merger under Sections 40(C)(2)(a) & (b) and 40(C)(6)(b) of the National Internal Revenue Code of 1997. The subject under consideration pertains to the following: 1. That the correct number of allocated Penpro Shares to Preferred Shares as it relates to the transfer of the Building asset should be 55,591,122 and not 66,511,115 as incorrectly indicated in the ruling in order to arrive at the total allocated Penpro shares of P70,000,000; and 2. That the above correction in the amount of allocated Penpro shares to Preferred Shares would not affect the qualification of the merger under Section 40(C)(2) of the 1997 Tax Code and its tax consequences. TSHcIa In reply, please be informed that after re-evaluation of the case, this Office finds your request to be meritorious. Thus, the number of allocated Penpro Shares to Preferred Shares as it relates to the transfer of the Building asset should be 55,591,122 and not 66,511,115 as incorrectly indicated in the BIR Ruling No. S-40-034-2004, computed as follows: 1,062,993,759.00 x 70,000,000 = 55,591,122 1,338,515,219,00 where 70,000,000 refers to the number of Preferred Shares issued by Penpro to the stockholders of Rockpenpro pursuant to the Plan of Merger. The revised table is shown below: No. of No. of Allocated Allocated Allocated Allocated Substituted Substituted ASSETS Original Penpro Penpro Allocated Basis Basis /Adjusted Basis Shares to Shares to Liability (PHP) PREFERRED COMMON (PHP) PREFERRED COMMON SHARES SHARES SHARES SHARES (PHP) (70%) (PHP) (30%) Cash 413,337.00 21,616 371 289,335.90 124,001.10 Input Tax 22,102,258.00 1,155,876 19,815 18,795,935.40 2,314,425.82 991,896.78 Creditable Withholding Taxes 2,771,715.00 144,952 2,485 2,357,088.41 290,238.62 124,387.98 Land: TCT 217525 172,000,000.00 8,995,042 154,201 146,270,163.37 18,010,885.64 7,718,950.99 TCT 217526 23,975,000.00 1,253,815 21,494 20,388,530.04 2,510,528.97 1,075,940.99 Building 1,062,993,759.00 55,591,122 952,991 903,978,318.54 111,310,808.32 47,704,632.14 Building Parking 57,787,878.00 2,760,635 47,325 44,891,229.88 5,527,653.69 2,368,994.44 Tools and Furniture 16,507.00 863 15 14,037.68 1,728.52 740.79 Other Assets 1,454,765.00 76,079 1,304 1,237,143.69 152,334.92 65,286.39 Total 1,338,515,219.00 70,000,000 1,200,000 1,137,932,447.00 140,407,940.40 60,174,831.60 Accordingly, this amends BIR Ruling No. S-40-034-2004 dated November 24, 2004 to the extent that the number of allocated Penpro shares to Preferred Shares as it relates to the Building asset is P55,591,122. In addition, the above correction would not affect the qualification of the merger under Section 40(C)(2)(a) & (b) and 40(C)(6)(b) of the Tax Code of 1997 and its tax consequences, This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group