BIR Ruling [DA-400-05]

September 26, 2005 BIR RULING [DA-400-05] Keller Insurance Brokers, Inc . 2/F The Athenaeum Building L.P. Leviste Street Salcedo Village Makati City Attention: Mr. Raul T. Guerrero Chief, Financial Officer Gentlemen : This refers to your letter dated January 8, 2003 stating that Diethelm Keller Holdings AG (DKHA) is the owner of Edward Keller (Philippines), Inc. (EKPI), Griffith Laboratories Philippines Incorporated (GLPI), Zurlex Property Holding Corporation (Zurlex) and Keller Insurance Brokers Incorporated (KIBI); that on October 4, 2001, DKHA spun its "Services Asia" Division, as a result of which, the companies relating to the "Services Asia" Division, were transferred to Diethelm Keller Services Asia (DKSA) by way of non-cash capital contribution against new shares of DKSA; that the transfer included KIBI; that on June 19, 2002, DKHA merged with Siberhegner Holdings AG (SHAG); that one of the terms of the merger was for DKHA to transfer its shares in DKSA to SHAG in exchange for SHAG shares; that it was the intention of the parties to the merger to transfer the operative Asia business only, therefore, those companies which held real property interests, like KIBI, were excluded; that DKSA declared dividends by way of KIBI shares in favor of DKHA; that as a result of this, the KIBI shares were reverted to its original owner, DKHA, and were not included in the transfer of shares from DKSA to SHAG; and that SHAG later on changed its name to Diethelm Keller Siberhegner Holdings AG (DKSH). Based on the foregoing representations, you now request for confirmation of your opinion that "1. The declaration of dividends by way of KIBI shares from DKSA to DKHA qualifies as a tax-free transfer of stock dividends; and "2. No gain or loss shall be recognized on the declaration of dividends by way of KIBI shares from DKSA to DKHA because after the declaration of the stock dividend, the controlling interest remains the same." HSTCcD 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 "In reply thereto, I have the honor to inform you 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. "xxx xxx xxx Accordingly, this Office holds that the transfer by DKSA of its shares of stock in KIBI, a domestic corporation, as stock dividends in favor of DKHA, in pursuance of its legitimate worldwide corporate reorganization is not subject to Philippine income tax, as there is no effective transfer of beneficial ownership, since the transfer was from a subsidiary to a parent company. Moreover, no gain was realized by DKSA for income tax purposes. 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.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue