Fernandez Aguja Law Firm

April 16, 2008 BIR RULING [DA-247-08] Sec. 28 (B) (5) (c); Sec. 175; DA 308-07 dtd 5/18/07 Fernandez Aguja Law Firm Suite 5F JL Bldg., Don Jose Avila cor. Don Gil Garcia Streets, Cebu City Attention: Atty. Luna Mae F. Aguja Partner This refers to your letter dated March 28, 2008 requesting on behalf of your client, Pentax Cebu Philippine Corporation (Pentax-Cebu), confirmation of your opinion that: 1) The transfer of shares of stocks from Pentax Corporation (PENTAX) to Hoya Corporation (HOYA), both organized and existing corporations in Japan, for shares of stocks held in three domestic corporations, namely: Pentax-Cebu, Pentax-Luzon Philippines Corporation (Pentax-Luzon) and Malayan Asahi Property Corporation (Malayan) shall be exempt from capital gains tax under Section 28 (B) (5) (c) of the Tax Code of 1997, as amended, but shall be subject to documentary stamp tax under Section 175 of the same Tax Code. It is represented that PENTAX is a non-resident foreign corporation organized and existing under the laws of Japan, with principal office at 2-36-9, Maeno-cho, Itabashi-ku, Tokyo 175-8639, Japan; that it is engaged in the business of manufacture and sale of cameras, optical machines and instruments, and other instruments and products as stated in its Articles of Incorporation; that, on the other hand, HOYA is also a non-resident foreign corporation organized and existing under the laws of Japan, with principal office at 2-7-5 Naka-Ochiai, Shinjuku-ku, Tokyo, Japan; and that it is engaged in the business of manufacture and sale of various glass and ceramic products, various chemicals and chemical products, electronics related materials, components and equipment, electro-optics related materials, components and equipment, optical glasses and other products and instruments as specified in its Articles of Incorporation. It is further represented that on October 29, 2007, HOYA and PENTAX entered into a merger whereby HOYA shall remain as the surviving company and PENTAX shall be extinguished as an absorbed company effective March 31, 2008; that as a consequence of the merger, PENTAX needs to transfer all of its assets including its shareholdings in the aforementioned domestic corporations to HOYA; and that as of March 15, 2008, PENTAX owns the following shares of stocks in the following domestic corporations: Pentax Cebu Philippines Corporation 1,279,995 shares Pentax Luzon Philippines Corporation 1,399,995 shares Malayan Asahi Property Corporation 5,998 shares It is finally represented that Pentax-Cebu, is a corporation organized and existing under the laws of the Philippines, with principal office at Mactan Economic Zone 1, Lapulapu City Philippines; that it is a duly registered Philippine Economic Zone Authority (PEZA) export enterprise under Certificate of Registration No. 90-031; that its business activity as an Ecozone Export Enterprise consists of the manufacture and assemble of cameras, lenses and related equipment; that, on the other hand, Pentax Luzon is also a corporation organized and existing under the laws of the Philippines, with principal office at Cavite Special Export Processing Zone, Gateway Business Park, Javalera, General Trias, Cavite; that it is engaged in the business of manufacturing, exporting, buying, selling at wholesale high index ophthalmic plastic lenses; and that, lastly, Malayan is a corporation duly organized and existing under the laws of the Philippines, with principal office at Cavite Special Export Processing Zone, Gateway Business Park, Javalera, General Trias, Cavite. SCEDAI In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. In BIR Ruling No. DA 209-05 dated April 27, 2005, this Office had already occasion to rule on the matter, thus: "The transfer of the shares in Taian Subic from Taian Taiwan to TECO is a legal consequence of the merger of Taian Taiwan with TECO, with the latter as the surviving corporation. A merger does not involve a sale, exchange or disposition of shares since there is no transfer of beneficial ownership over the shares. In a merger, the surviving corporation succeeds to the rights and liabilities of the absorbed corporation and merely carries on the identity of the latter. Hence, no taxable transaction actually took place in the Philippines. (BIR Ruling No. UN397-95 dated October 14, 1995) Accordingly, the transfer of the Taian Taiwan to TECO pursuant to a merger effected in accordance with the laws of Taiwan is not subject to the 5%/10% capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997." Accordingly, the gains, if any, derived by PENTAX in the transfer of its shares in Pentax-Cebu, Pentax-Luzon and Malayan to HOYA as a result of the merger effected abroad is not subject to the capital gains tax prescribed in Section 28 (B) (5) (c) of the Tax Code of 1997. 2. However, notwithstanding the foregoing exemption, the transfer of shares held by PENTAX in Pentax-Cebu, Pentax-Luzon and Malayan to HOYA pursuant to the said merger effected abroad is nevertheless subject to the documentary stamp tax imposed under Section 175 of the Tax Code of 1997, as amended by R.A. No. 9243, at the rate of P0.75 on each P200.00, or a fractional part thereof, of the par value of the shares. 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