Mr. Leonardo T. Mendoza

March 26, 2008 BIR RULING [DA-199-08] DA346-06 Mr. Leonardo T. Mendoza 53 Ivory Street SSS Village Marikina City S i r : This refers to your letter dated January 7, 2008 requesting for an opinion on the tax consequences of the assignment or transfer of shares of the hereunder mentioned corporations in favor of Global 808 Investment Holdings, Inc., all with a par value of P100 per share; and that the "share in revaluation increment" i.e., increase in value of property because of reappraisal thereof at current value without sale or exchange is not considered as income and should not therefore be included in the determination of the book value of the shares of stock for purposes of the aforesaid sale or transfer, for purposes of the latter qualifying as a stockholder in the said corporations, to wit: Corporations Book Value Asturias Chemical Industries, Inc. No operation Agusan Petroleum & Mineral Corporation No operation Batulao Mineral Corporation No operation Evercrest Cement & Mining Corporation No operation Standard Constructors Industries, Inc. P31.46 deficit It appears that Asturias Chemical Industries, Inc. is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ASO93-007721 dated October 1, 1993; that it is organized primarily for the purpose to engage in, operate, conduct and maintain the business of manufacturing, importing, exporting, buying, selling or otherwise dealing in, at wholesale and retail of white cement and its by-products and other cement products, materials, goods of similar nature, and any and all equipment, materials, supplies used or employed in or related to the manufacture of such finished products. Agusan Petroleum & Mineral Corporation is a corporation duly registered with the SEC under SEC Registration No. ASO95-007434 dated August 2, 1995; that it is organized primarily for the purpose to locate, purchase, lease or otherwise acquire mining rights and claims, matelliferious lands, quarries, quarry rights and prospect for, claim and extract minerals therefrom such as but not limited to sulphur, silica, feslpar, uranium, rare earth, mica, copper, coal, lead, silver, gold, and other minerals, ores, and properties of every kind and nature, and of earth, rock, sand shale and other substances containing mineral and ore deposits and, for this purpose, lease or otherwise acquire, use and operate equipment, machinery and other facilities required for the prospecting of any of the foregoing minerals and ores and any by-products therefrom, and to do any and all things incidental thereto, or necessary, or expedient or proper to be done in connection with the purpose set forth herein. Batulao Mineral Corporation is a corporation duly registered with the SEC under SEC Registration No. ASO95-008917 dated September 11, 1995; that it is primarily organized to locate, purchase, lease or otherwise acquire mining rights and claims, metalliferious lands, quarries, quarry rights and prospect for claim and extract minerals therefrom such as but not limited to sulphur, silica, feldspar, uranium, vanadium, rate earth, mica, copper, coal, lead, silver, gold and other minerals, ores and properties of every kind and nature, and of earth, rock, sand shale and other substances containing mineral and ore deposits and, for this purpose, purchase, lease or otherwise acquire, use and operate equipment, machinery and other facilities required from the prospecting of any of the foregoing minerals and ores and any by-products therefrom, and to do any and all things incidental thereto or necessary, or expedient, or proper to be done in connection with the purpose set forth herein. Evercrest Cement and Mining Corporation is a corporation duly registered with the SEC under SEC Registration No. ASO95-008916 dated July 3, 2002; that it is primarily organized to locate, purchase, lease or otherwise acquire mining rights and claims, metalliferious lands, quarries, quarry rights and prospect for claim and extract minerals therefrom such as but not limited to sulphur, silica, feldspar, uranium, vanadium, rate earth, mica, copper, coal, lead, silver, gold and other minerals, ores and properties of every kind and nature, and of earth, rock, sand shale and other substances containing mineral and ore deposits and, for this purpose, purchase, lease or otherwise acquire, use and operate equipment, machinery and other facilities required from the prospecting of any of the foregoing minerals and ores and any by-products therefrom, and to do any and all things incidental thereto or necessary, or expedient, or proper to be done in connection with the purpose set forth herein. SIcTAC Standard Constructors Industries, Inc. is a corporation duly registered with the SEC under SEC Registration No. ASO93-01403 dated February 19, 1993; that it is primarily organized to engage in general construction and other allied services including the constructing, enlarging, repairing, removing, developing, or otherwise engaging in any work upon buildings, roads, highways, manufacturing plants, bridges, airfields, piers, docks, mines, shafts, waterworks, railroads, railway structures, all iron, steel, wood, masonry and earth construction, and to make, execute, bid for and take or receive any contracts or assignment of contracts therefore, or in relation thereto, or connected therewith and to manufacture and furnish building materials and supplies connected therewith; and doing of any and all other business and contracting incidental thereto or connected therewith, and the doing and performing of any and all acts and things necessary, proper or convenient for and incidental to the furtherance and/or implementation of the purposes therein mentioned. and that the assignors corporation will transfer by way of Deeds of Assignment some of its shares of stock in favor of Global 808 Investment Holdings, Inc. at par value. In reply thereto, please be informed that Section 6 (a) (3) (ii) of Revenue Regulations No. 2-82 provides that "Section 6. Determination of Tax Base. In determining the tax base, the following rules shall apply: (a) Determination of selling price. The selling price of the shares of stock shall be the fair market value of the shares of stock transferred or exchange and not the fair market value of the property received in exchange. If the total consideration of the sale or disposition consists partly in cash or money and partly in kind, the selling price shall be the fair market value of the shares disposed. xxx xxx xxx (ii) In case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value, together with the evidences in support thereof, should be submitted. The following factors are considered relevant in the valuation of shares of stock of closed corporations. xxx xxx xxx If such lower fair market valuation is not clearly established and documented, the book value of the unlisted shares of stock shall be adopted. If there have been previous sales/exchanges of the unlisted shares of stock, the price at which those shares exchanged hands should be taken/considered as its fair market value." aIcTCS Said regulations clearly provides that the book value of the above-mentioned unlisted shares of stock shall be prima facie considered as their fair market value, and in case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value, together with the evidences in support thereof, should be submitted. On the basis of the figures in the audited financial statements (stockholders' equity section) as of December 31, 2006, it would appear that the fair market value of the shares of stock of the above-mentioned corporations was P100.00 per share. For purposes of computing the correct amount of capital gains tax payable and remitting in the process prima facie rule laid down by the regulations as discussed above, it is important that what should be determined is the true fair market value of the shares being transferred. Considering that the true fair market values of the shares of stock of the said corporations are P100.00 per share which is less than the total amount of the outstanding obligations as of the date of execution of the Deeds of Assignment, there is loss (rather than a gain) from the assignment or transfer of such shares of stock to Global 808 Investment Holdings, Inc. Accordingly, there is no capital gain from the sale or transfer of the shares of stock of the above-mentioned corporations in favor of Global 808 Investment Holdings, Inc. aHADTC On the other hand, "share in revaluation increment" i.e., increase in value of property because of reappraisal thereof at current value without sale or exchange in the amount are not considered as income and should not therefore be included in the determination of the book value of the aforesaid corporations shares for purposes of the capital gains tax on the sale or transfer of the said shares. Accordingly, this will therefore serve as the authority for the Revenue District Office concerned to issue the corresponding Certificate Authorizing Registration (CAR) relating to the shares of stock of Asturias Chemical Industries, Inc., Agusan Petroleum & Mineral Corporation, Batulao Mineral Corporation, Evercrest Cement & Mining Corporation and Standard Constructors Industries, Inc. on the aforementioned transactions. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service