Puno and Puno Law Offices

June 14, 2007 BIR RULING [DA-327-07] 127 (B); 072-97; 035-99; 001-06 Puno and Puno Law Offices 12th Floor, East Tower Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Atty. Ma. Elizabeth E. Peralta-Loriega & Atty. Gracejenn Vizcarra Giron Gentlemen : This refers to your letter dated June 12, 2007 requesting on behalf of your client, Aboitiz Power Corporation ("Aboitiz Power"), confirmation to the effect that the listing of shares with the Philippine Stock Exchange ("PSE") will not be subject to the Initial Public Offering ("IPO") tax imposed under Section 127 (B) of the Tax Code of 1997, as amended. It is represented that Aboitiz Power is a holding company organized and existing under the laws of the Philippines, with core business activity currently focused on power generation and power distribution through various subsidiaries. As of April 9, 2007, Aboitiz Power is wholly owned by Aboitiz Equity Ventures ("AEV"). AEV, on the other hand, is a corporation duly organized and existing under the laws of the Philippines, whose stocks are listed and traded in the PSE. As of March 31, 2007, the top ten shareholders of AEV are Aboitiz & Company, Inc., PCD Nominee Corporation Foreign, Ramon Aboitiz Foundation, Inc., PCD Nominee Corporation Domestic, Santil Management Corporation, Lekeitio & Company, Inc., Tricanaya Development Corporation, INXS Holdings Corporation, Midcita Management & Development Corporation and Chanton Management & Development Corporation; that as for the beneficial owners of PCD Nominee Corporations, both foreign and domestic, are composed of numerous corporations, that it was disclosed that some of the beneficial owners of the PCD nominee shares are composed of the following corporations: Government Service Insurance System, San Miguel Corporation Retirement Plan, Purefoods-Hormel Co., Inc. Employees' Ret. Plan, San Miguel Corporation Retirement Plan-STP, Cosmos Bottling Corp. Multiemployer Ret. Plan, Coca-Cola Bottlers Phils., Inc. Retirement Plan, Banco De Oro Trust Banking Group, Citibank N.A. Y CITI FAO Sunlife, Citibank N.A. Y CITI FAO Philam, Citibank N.A. Y CITIOMNIFOR, Citibank N.A. Y CITIOMNILOC, Deutsche Bank Manila-Clients A/C, The Hongkong And Shanghai Banking Corp. Ltd. Clients' Acct., Asia United Bank Trust & Investment Group, United Coconut Planters Life Assurance Corporation, The Insular Life Assurance Co., Ltd. Equity Fund, AIG Philam Savings Bank, As Trustee For VTA (Foreign), RCBC Trust & Investment Division, Standard Chartered Bank, MBTC Trust Banking Group and BDO Securities Corporation. From the foregoing, you are requesting confirmation of your opinion that at the time of the IPO, Aboitiz Power is not a closely held corporation, as such, not subject to IPO tax under Section 127 (B) of the Tax Code, as amended. In reply thereto, please be informed that Section 127 (B) of the 1997 Tax Code, as amended, provides as follows: "SEC. 127. Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering. xxx xxx xxx (B) Tax on shares of stock sold or exchanged through initial public offering. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporation, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange. Up to twenty-five percent (25%) 4% Over twenty-five percent (25%) but not over thirty three and one third percent (33 1/3%) 2% Over thirty-three and one third percent (33 1/3%) 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering. For purposes of this Section, the term "closely held corporation" means any corporation at least fifty percent (50%) in value of the outstanding capital stock of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied. (1) Stock not Owned by Individuals. Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries . xxx xxx xxx." (emphasis supplied) The IPO tax would apply only to corporations which are considered "closely held", meaning that at least 50% in value of the outstanding voting shares of all classes is owned directly or indirectly by or for not more than 20 individuals. In the case where the shares of stock in the corporation to be listed are owned by another corporation, such shares will be considered as being owned proportionately by the latter's shareholders. SAHIDc Since Aboitiz Power is owned by a publicly listed corporation AEV, at the time of the application to list the shares of Aboitiz Power with the PSE, the corporate shareholding of AEV in Aboitiz Power will be considered as being proportionately owned by AEV's shareholders. Taking it further, since AEV is owned by numerous corporations, the shareholdings of the said corporations such as PCD Nominee Corporation Foreign and Domestic in Aboitiz Power through AEV will still be proportioned among said shareholders. In the case of a multi-tiered corporation, the stock attribution rule must be allowed to run continuously along the chain of ownership until it finally reaches the individual stockholders. This is in consonance with the "grandfather rule" adopted in the Philippines udder Section 96 of the Corporation Code (Batas Pambansa Blg. 68) which provides that notwithstanding the fact that all the issued stock of a corporation are held by not more than twenty persons, among others, a corporation is nonetheless not to be deemed a close corporation when at least two thirds of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. ( BIR Ruling Nos. DA-001-06 dated January 4, 2007; 072-97 dated July 02, 1997 ) Since the shareholders of AEV, consist of possibly hundreds and thousands of individuals, Aboitiz Power cannot be considered as a "closely held corporation" prior to its listing with the PSE. Accordingly, this Office is of the opinion as it hereby holds that the listing of shares of stock of Aboitiz Power with the PSE will not be subject to IPO tax because prior to the listing of shares, Aboitiz Power is not a closely held corporation as defined under Section 127 (B) of the Tax Code, as amended. ( BIR Ruling Nos. DA-001-06 dated January 4, 2006; 035-99 dated 25 March 1999 ). CaHAcT This ruling is being issued on the basis of the foregoing facts as represented. However, if upon its investigation, it will be ascertained 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