BIR Ruling [DA-166-97]

April 15, 1997 BIR RULING [DA-166-97] AB Capital and Investment Corporation Makati City Attention: Mr . Marcelito R . Ordoez Senior Vice President and Mr . Michael C . Hilado Assistant Vice President Gentlemen : This refers to your letter dated January 29, 1997 in effect requesting for a ruling that a Convertible Long Term Commercial Paper Issue (Convertible LTCP or Issue) is in effect a warrant within the contemplation of Section 2 of the Revised Securities Act and as such it qualifies for listing in the Philippine Stock Exchange (PSE). It is represented that Ayala Land, Inc. (ALI) is scheduled to launch its P40 Billion Convertible LTCP within the first quarter of 1997 and intend to list the same in the PSE; that a PSE listing will pave the way for a more active secondary market trading of long-term convertible instruments which, in turn, would lead to a higher volume and liquidity in the market for such issues; that a listing would provide a ready source of liquidity to investors, thereby enhancing the Issues' attractiveness and encouraging new investment in long-term capital market instruments. Based on the foregoing, you proposed that the stock transactions tax of 1/2 of 1%, based on the transaction value, be applied to transactions of the Issue coursed through the Exchange. In reply, please be informed that pursuant to Section 124-A of the Tax Code as amended by R.A. 7717, this Office had issued BIR Ruling NO. 68-96 subjecting to the stocks transaction tax the PNB warrants traded through the facilities of PSE because of the "equity-linked" feature thereof that justified its categorization as a security. The Revised Securities Act (BP Blg. 178), defined "Securities" as including, among others, shares of stock in a corporation and rights to subscribed for and to received such shares, or warrants or rights to subscribed to or buy or sell shares. As with the PNB Warrants, the ALI Convertible Issue entitles the ALI Convertible LTCP holder to convert it to common "B" shares (ALI-B) at a specified conversion price within a five-year period from Issue date. Although, the ALI Conversion Option is not detachable and, therefore, not separately tradable from the Convertible LTCP, since the Conversion Option is attached to the Convertible LTCP when traded in the Exchange, the "equity-linked feature" of a warrant holds true in a Convertible LTCP. In other words, a Convertible LTCP amounts to a warrant within the contemplation of "Securities" as defined under Section 2 of the Revised Securities Act. Pursuant to BIR Ruling No. 68-96, the Convertible LTCP to be issued by your client should be treated as a security that will qualify for listing in the PSE. Such being the case, the 1/2 of 1% stock transaction tax based on the transaction value shall apply to the convertible LTCP to be issued by your client. (BIR Ruling No. 068-96 dated June 25, 1996). 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. aisadc Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head, Revenue Executive Assistant (Legal Service)