Puyat Jacinto Santos

July 20, 2007 BIR RULING [DA-399-07] DA 288-05 Puyat Jacinto Santos 12/F Manilabank Building 6772 Ayala Avenue Makati City Attention: Atty. Virginia B. Viray and Atty. Divina Gracia Cabildo-Yap Gentlemen : This refers to your letter dated January 11, 2007 stating that your client, Bank of America, N.A. (BOA-US), is a foreign banking institution duly organized and existing under the laws of Charlotte, North Carolina, United States of America (USA) and with principal office address at 101 N. Tyron Street, Charlotte, USA; that on April 15, 1947, BOA US obtained authority from the Bangko Sentral ng Pilipinas to operate a branch with full commercial banking license in the Philippines; that the Philippine Branch is licensed to provide commercial banking services and foreign exchange services to large multinational corporations and enter into regular financial derivatives; that the credit agreement was executed in the USA between BOA US as Administrative Agent, Collateral Agent, L/C issuer and Swing Line Lender; and Infonxx Inc. (US), The Number UK Ltd. (England and Wales) and Carbone S.A.R.L. (Luxembourg), as Borrowers; that Infonxx, Inc. is a corporation organized and existing under the laws of Delaware, USA, with principal office address located at 3864 Courtney Street, Suite 411, Bethlehem, PA 18017; that Infonxx US owns 100% of the capital stock of Infonxx Capital Management, Inc. (Infonxx CMI US), a corporation organized and existing under the laws of Delaware, USA, with principal office address at 1209 Orange Street, Wilmington, DE 19801; that Infonxx CMI US, on the other hand, owns 100% of the capital stock of Infonxx Philippines, Inc. (Infonxx Phils.) a domestic corporation duly organized and established in the Philippines with principal office address at 11th Floor, RCBC Plaza Tower 2, Ayala Avenue corner Sen. Gil J. Puyat Avenue, Makati City, Philippines; that the Number UK Ltd. is a corporation organized and existing under the laws of United Kingdom with principal office address at Sterling House, Malthouse Avenue, Cardiff Gate Business Park, Cardiff CF23 8rd Wales; that Carbone S.A.R.L., a corporation organized and existing under the laws of Luxembourg with principal office address located 67 Boulevard Grande Duchesse Charlotte, L-1331 Luxembourg; that Carbone S.A.R.L. is 100% owned subsidiary of Infonxx Phils.; that all three (3) Borrowers have no branch in the Philippines and are not engaged in trade or business in the Philippines; that as security for the credit facility, a pledge agreement will be executed between Infonxx Phils. as the Pledgor and BOA US as Pledgee; that under the pledge agreement, the Pledgor will pledge its preferred shares in Carbone S.A.R.L.; and that by pledging its Carbone S.A.R.L. issued shares, the Pledgor undertakes to secure specifically the loan obligations of The Number UK Ltd. and Carbone S.A.R.L. under the credit agreement. Based on the foregoing representations, you now request confirmation of your opinion that the deeds of pledge to be executed by Infonxx Phils. over its Carbone S.A.R.L. issued shares, in favor of BOA US, as Pledgee, to secure the offshore third party loan obligation is not subject to DST in the Philippines. In reply thereto, please be informed that Section 195 of the Tax Code of 1997, as amended, provides that "SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust . On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing of forborne to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: . . . . Corollarily, Section 173, supra , provides "SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the done directly liable for the tax. TDcAIH Prescinding from the foregoing provisions, the DST is imposed when the obligation or right arises from Philippine sources or the property is situated in the Philippines. In the instant case, the subject document is a deed of pledge over shares issued by a corporation located outside the Philippines executed by the Pledgor, which is a domestic corporation that owns the shares. The Pledgee, on the other hand, is a foreign corporation located outside the Philippines, to secure a loan obtained outside the Philippines by foreign borrowers. A pledge is an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person. In other words, a pledge is perfected by delivery of the thing pledged. It is to be noted that DST is an excise tax or the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. Inasmuch as the deed of pledge will only be perfected and consummated outside the Philippines by the delivery of the object of the pledge situated in Luxembourg to the US, it becomes apparent that the obligation of the Pledgor or the right of the Pledgee under the deed of pledge will not arise in the Philippines. Consequently, the deed of pledge is not subject to tax in the Philippines as the obligation or right under the pledge does not arise in the Philippines. Finally, since the subject matter of the pledge, are shares of stock of Infonxx Phils. issued by Carbone S.A.R.L., a company located in Luxembourg, which are outside the Philippines, the same is not within the ambit of Section 173 of the Tax Code of 1997, as the same is outside the taxing jurisdiction of the Philippines. IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that deeds of pledge to be executed by Infonxx Phils. over its Carbone S.A.R.L. issued shares, in favor of BOA US, as Pledgee, to secure the offshore third party loan obligation is not subject to DST in the Philippines. aTIEcA 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