SGV & Co.

March 28, 2008 BIR RULING [DA-203-08] Section 27; 34; DA-336-07 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Mr. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your letter dated February 21, 2008 requesting on behalf of your client, The Hongkong and Shanghai Hotels, Limited ("HSH") , confirmation of your opinion that the transfer of shares in Manila Peninsula Hotel, Inc. ("MPHI") from HSH to another subsidiary Peninsula Manila B.V. ("PM-BV") is not subject to capital gains tax since the transfer is part of a worldwide corporate reorganization and there is no effective transfer of beneficial ownership. The facts, as you represent, are as follows: 1. HSH is a corporation duly organized and existing under the laws of Hong Kong with office at 8th Floor, St. George's Building, 2 Ice House Street, Central, Hong Kong. It is a holding company with various subsidiaries engaged in the ownership and management of prestigious hotel, commercial and residential properties in key destinations in Asia and the USA. 2. PM-BV is a corporation duly organized and existing under the laws of Netherlands with office at Teleport 8-Telestone, Naritaweg 165, 1043 BW Amsterdam, The Netherlands. It is one of the subsidiaries under the HSH group and is effectively 100% owned by HSH. It was established as an investment holding company primarily to hold the shares in MPHI. 3. MPHI is a domestic corporation with office address at Ayala Avenue cor. Makati Avenue, Makati City, Philippines. It is also a subsidiary of HSH and categorized as one of the property-owning companies under the HSH group. It is engaged in operating a hotel, specifically, the Manila Peninsula Hotel. EaICAD 4. As of 31st December 2007, the equity interest of the HSH group in MPHI was held via two holding companies, namely HSH and PM-BV, with ownership of 48.70% and 27.39% of the total outstanding shares, respectively. 5. The HSH Group's worldwide corporate reorganization is for the purpose of aligning its asset-owning companies under specific intermediate holding companies. 6. Thus, pursuant to the worldwide corporate reorganization, HSH should no longer directly hold interest in asset-owning companies. Instead, an intermediate investment holding company, such as PM-BV, should directly hold interests in asset-owning companies like MPHI. As a result, the shares in MPHI will be transferred from HSH to PM-BV. 7. Consequently, on January 23, 2008, HSH transferred to PM-BV its 48.70 interest in MPHI consisting of a total of 54,462,698 (51,895,008 + 2,567,690) shares. Based on the abovementioned facts, you respectfully request our confirmation of the opinion that the transfer from HSH to PM-BV of the MPHI shares totaling 54,462,698 (51,895,008 + 2,567,690) being undertaken pursuant to established directions set out in a legitimate worldwide corporate reorganization of the HSG group is exempt from capital gains tax since there is no effective transfer of beneficial ownership as PM-BV is effectively 100% owned by HSH. In reply thereto, please be informed that in BIR Ruling No. 347-87 dated November 5, 1987, wherein the transaction involved the transfer of Philippine shares owned by a foreign corporation to its wholly-owned foreign subsidiary under the proposed corporate reorganization, the BIR ruled 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." Accordingly, this Office holds that since the transfer by HSH to PM-BV of the MPHI shares totaling 54,462,698 is in pursuance to a legitimate worldwide corporate reorganization, and there is no effective transfer of beneficial ownership, no gain was realized by both HSH to PM-BV for income tax purposes. HTSIEa 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service