BIR Ruling [DA-235-98]

June 10, 1998 BIR RULING [DA-235-98] Balmeo Bautista & Peasales Law Office Unit 314 Cityland III Condominium 105 Herrera cor. Esteban Streets, Legaspi Village Makati City Attention: Atty . Leonides F . Balmeo Gentlemen : This refers to your letter dated May 13, 1998 stating that your client, First Asia Systems Technology, Inc. (FASTECH) received an offer for subscription to its unissued common shares from Asset Growth, Inc., Intervest Merchant Finance Corp., Belgosa International, Inc. and First Asia Venture Capital, Inc. (Subscribers) to the following number of unissued common shares of stock: prcd No. of Subscribers Shares Total Par Value Belgosa International, Inc. 17,090 P1,709,000.00 Intervest Merchant Finance Corp. 25,000 2,500,000.00 Asset Growth, Inc. 75,000 7,500,000.00 First Asia Venture Capital, Inc. 7,910 791,000.00 Total 125,000 P12,500,000.00 ====== =========== that at the time the offer was made, FASTECH does not have sufficient authorized and unissued shares to cover the subscriptions; that there was at that time, a necessity for an increase of authorized capital stock by at least Twelve Million Five Hundred Thousand Pesos (P12,500,000.00) represented by One Hundred Twenty Five Thousand (125,000) common shares of stock; that the Subscribers required FASTECH to commit that within two to three weeks time from payment of subscriptions, it will procure from the Securities and Exchange Commission (SEC) approval of the increase, otherwise the offer of investment will be withdrawn; that FASTECH believes that it cannot secure the required approval in two to three weeks time because of the necessity of submitting documents like Board and Stockholders resolution authorizing the investment, final audited financial statements of the investors, proof of capacity to invest and the necessity of SEC Examining Division to go over the books of the investors; that to short-cut all the procedures, the corporate lawyers of FASTECH suggested that the individual officers of the Subscribers be constituted as the nominee of the Subscribers for the purpose of applying for the increase of authorized capital stock; that the following were appointed as nominees by the Subscribers: Principals Nominees Belgosa International, Inc. Carmelita M. Chua Intervest Merchant Finance Corp. Carmelita M. Chua Asset Growth, Inc. Amada J. Javellana and Saturnino G. Belen, Jr. First Asia Venture Capital, Inc. Carmelita M. Chua that the investors paid a premium on subscription of Seven Hundred Pesos (P700.00) per share because FASTECH, at the time of the investment or subscription, is already a going concern and a successful business venture; that the premium paid was booked by FASTECH as part capital account under paid-up capital; that when the increase was approved by the SEC, the shares of stock covering the paid-up subscription were issued directly to the Principals and were not anymore issued to the nominees, in accordance with the request of the Principals concurred to by the nominees and addressed to FASTECH; that this would lessen administrative and corporate housekeeping work; that the corresponding documentary stamp tax were paid by FASTECH upon issuance of the original certificate of stock in the name of the Principals; and that the SEC has been informed of the existence of such Trustor-Nominee relationship. Based on the foregoing, you now request for a confirmation of your opinion that the issuance by FASTECH of the certificates of stock directly to the Principals has no tax consequences whatsoever to the nominees whether income, business or documentary stamp tax and that the payment of documentary stamp tax is the sole tax liability of the Principals and/or FASTECH arising from the subscription and issuance of the shares to the Principals. In reply, we confirm your opinion that the issuance by FASTECH of the certificates of stock directly to the Principals has no tax implications on the part of the nominees since the certificates of stock remain in the name of the Principal and the constitution of the individual officers of the Subscribers as their nominees was for the purpose of applying for the increase of authorized capital stock. If, however, the transfer carries a change in the name appearing in the certificates of stock or in the books of the corporation or company issuing the same, the transfer is taxable. However, the original issuance of shares of stock are subject to the documentary stamp tax imposed by Section 175 of the Tax Code of 1997, which shall attach upon acceptance by the corporation of the stockholder's subscription regardless of the actual delivery of the certificates of stock. (BIR Ruling No. S40-36-98 dated March 26, 1998) 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. cdtech Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)