BIR Ruling [DA-467-06]

July 28, 2006 BIR RULING [DA-467-06] Section 29; BIR Ruling No. DA-203-02 Gerodias Suchianco Estrella Suite 2404 Discovery Center 25 ADB Avenue Ortigas Center, Pasig City Attention: Atty. Raul G. Gerodias and Atty. Amabelle Grace G. Mascardo Gentlemen : This refers to your letters dated April 26, 2006 requesting on behalf of your client, Pioneer Hi-Bred Philippines, Inc . ("Pioneer Philippines") for confirmation of your opinion that Pioneer Philippines is a publicly-held corporation for purposes of Revenue Regulations No. 2-2001 implementing the provision on improperly accumulated earnings tax under Section 29 of the Tax Code of 1997. As represented, Pioneer Philippines is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. It is a wholly-owned subsidiary of Pioneer Overseas Corporation ("POC"), a corporation duly organized and existing under the laws of the State of Iowa, USA, where the latter owns and controls One Hundred Percent (100%) of Pioneer Philippines' capital stock. TEacSA POC, in turn, is owned by Pioneer Hi-Bred International, Inc. ("Pioneer International"), a corporation duly organized and existing under the laws of the State of Iowa, USA, where Pioneer International owns and controls One Hundred Percent (100%) of POC's capital stock. Pioneer International is owned by E.I. Du Pont De Nemours and Company ("Du Pont"), a corporation duly organized under the laws of the State of Delaware, USA, where Du Pont owns One Hundred Percent (100%) of the capital stock of Pioneer International. In reply, please be informed that Section 4 of Revenue Regulations No. 2-2001 implementing Section 29 of the Tax Code of 1997 on Improperly Accumulated Earnings Tax provides, viz: ". . . closely-held corporations are those corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations. For purposes of determining whether the corporation is 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. . . ." Moreover, improperly accumulated earnings tax shall not apply to publicly-held corporations pursuant to Section 29 of the Tax Code of 1997. The ownership of a domestic corporation for purposes of determining whether it is a closely-held corporation or a publicly-held corporation is ultimately traced to the individual shareholders of the parent company. Thus, where at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by more than 20 individuals, the corporation is considered a publicly-held corporation. Since Pioneer Philippines, a domestic corporation, is a wholly-owned subsidiary of POC which is owned by Pioneer International which in turn is owned by Du Pont, its shares shall be considered as being owned proportionately by the shareholders of Du Pont of Delaware, USA. Ultimately, the question of whether Pioneer Philippines is a publicly-held corporation, depends on whether at least 50% of said corporation is owned by more than 20 individuals. This is a question of fact, which is not a proper subject of a legal ruling. The proper function of a ruling is to interpret the tax laws and not to determine questions of fact. Accordingly, if Pioneer Philippines can show that it is a publicly-held corporation, it will not be subject to the improperly accumulated earnings tax. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service