BIR Ruling [DA-144-03]

May 5, 2003 BIR RULING [DA-144-03] S.27 347-87/11-5-87 Siguion Reyna, Montecillo & Ongsiako 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Attys. Jose Lis C. Leagogo & Michael Felipe A. Mercado Gentlemen : This refers to your letter dated October 19, 2002 requesting, on behalf of your client, Unilever, confirmation that the transfer of Unilever shares from Chico-Invest B.V. (CIBV for brevity) to its wholly owned subsidiary Mavibel B.V. (MBV for brevity) is not subject to tax since the transfer is part of a worldwide corporate reorganization and no gain was realized by CIBV for income tax transferring the Unilever shares to MBV. The facts, as you represent, are as follows: CIBV is a corporation incorporated under the laws of Netherlands whose primary purpose is to participate in and to manage and finance other enterprises. On 6 March 2002, MBV was spun off by CIBV under the laws of Netherlands. The primary purpose of MBV is to participate in, to take other interest in, to conduct the control of other enterprises, or any nature whatsoever, and furthermore to finance third parties and to give security in any way or to be bound for obligations of third parties and finally everything that is related to the above or may be conducive thereto. MBV, as a spin off of CIBV, is a wholly-owned subsidiary of CIBV. In the early part of 2002, CIBV undertook a worldwide corporate reorganization which has the effect of transferring its assets to its wholly-owned subsidiary, MBV. Pursuant to the worldwide corporate reorganization, the Unilever shares were transferred by CIBV to its wholly owned subsidiary, MBV. The transfer involves 4,918,512 fully paid shares of Unilever Phil. With a par value of P50.00 per share. Based on the above-mentioned facts, you respectfully request our confirmation of the opinion that since the transfer was pursuant to a worldwide reorganization where the Unilever shares were transferred from CIBV, the parent company, to MGV, a subsidiary, no gain was realized by Chico-Invest for income tax purposes in transferring the Unilever shares to MBVI. In reply, 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." TcaAID Accordingly, this Office opines and so holds that the transfer of the Unilever shares from the parent company, CIBV, to its subsidiary, MBV, was 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 CIBV 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. Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group