Punongbayan & Araullo

July 27, 2007 BIR RULING [DA-419-07] DA 209-05 Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Ms. Ma. Victoria C. Espao Tax Partner Gentlemen : This refers to your letter dated November 29, 2006 stating that Cargill Gmbh is a non-resident foreign corporation organized and existing under the laws of Germany with principal place of business at Ruedekenstrasse 51, D-38239 Salzgitter, Germany; that it owns 100% of Degussa Food Ingredients Gmbh (formerly Degussa Food Ingredients Gmbh) also a non-resident foreign corporation organized and existing under the laws of Germany with principal place of business at Dr. Albert-Frank-Strasse 32, D-83308, Trostberg, Germany; that in turn, Degussa Food Ingredients Gmbh owns 99.9% of Degussa Texturant Systems Philippines, Inc. (DTSPI), a domestic corporation with principal place of business at 28-C, Ayala Life-FGU Center, 6811 Ayala Avenue, Salcedo Village, Makati City; that Degussa Food Ingredients Gmbh changed its corporate name to Cargill Food Ingredients Gmbh (CFI Gmbh) on May 18, 2006; that likewise on June 7, 2006, the Securities and Exchange Commission (SEC) approved the change in corporate name of DTSPI to Cargill Texturizing Solutions Philippines, Inc. (CTSP); that in a notarized protocol dated September 20, 2006, the Managing Director of Cargill Gmbh declared that 'waiving compliance with all forms and periods for convening, notifying and holding, Cargill Gmbh hereby holds and extraordinary shareholders' meeting and resolves the merger agreement pursuant to Schedule 1 of this protocol between Cargill Gmbh as the acquiring legal entity and CFI Gmbh as the transferor company is approved'; that in the same document of even date, the Managing Director of CFI Gmbh likewise declared that 'waiving compliance with all forms and periods for convening, notifying and holding, Cargill Gmbh hereby holds and extraordinary shareholders' meeting and resolves the merger agreement pursuant to Schedule 1 of this protocol between Cargill Gmbh as the acquiring legal entity and CFI Gmbh as the transferor company is approved; that the merger between Cargill Gmbh and CFI Gmbh is expected to be completed and become effective in November 2006, with the parent company, Cargill Gmbh, as the surviving entity; that as a consequence of the merger, all the assets and liabilities of CFI Gmbh will be transferred to Cargill Gmbh, including the shares of stock in CTFP (Shares), without issuance of shares; and that the merger is designed to promote greater efficiency and economy in the management of Cargill's food ingredients business and allow it to make more productive use of its properties. Based on the foregoing representations, you now request confirmation of your opinion that 1. The transfer of the Shares by CFI Gmbh to Cargill Gmbh pursuant to a merger effected in accordance with the laws of Germany is not a taxable event in the Philippines, hence, not subject to the 5%/10% capital gains tax imposed under Section 28 (B) (5) (c) of the Tax Code of 1997; and 2. The transfer of the Shares by reason of the merger is not subject to the documentary stamp tax under Section 176 of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9243. In reply thereto, please be informed that your opinion is hereby confirmed as follows 1. In BIR Ruling No. DA209-05 dated April 27, 2005, this Office had already occasion to rule on the matter, as follows "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." IDEHCa At this juncture, observation has to be made of the fact that since the transfer of the Shares by CFI Gmbh to Cargill Gmbh is a legal consequence of the merger of the two non-resident foreign corporations which takes place outside the Philippines, with Cargill Gmbh as the surviving corporation, and the said merger does not involve a sale, exchange or disposition of shares considering that there is no transfer of beneficial ownership over the said shares as the surviving corporation, Cargill Gmbh, succeeds to the rights and liabilities of the absorbed corporation, CFI Gmbh, its wholly owned subsidiary, no taxable transaction actually took place in the Philippines. Accordingly, the transfer of Shares by CFI Gmbh to Cargill Gmbh pursuant to a merger effected outside the Philippines is not subject to the 5%/10% capital gains tax imposed under Section 28 (B) (5) (c) of the Tax Code of 1997. 2. Finally, no documentary stamp tax shall be due on the transfer of shares held by CFI Gmbh in CTSP to Cargill Gmbh pursuant to the said merger effected abroad in accordance with Section 199 (m) of the Tax Code, as amended by Republic Act No. 9243, in relation to Section 40 (C) (2) of the Tax Code, as amended. 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