BIR Ruling [DA-475-05]

November 21, 2005 BIR RULING [DA-475-05] Corporate Reorganization DA-209-05; DA-567-04; DA-642-04 Sycip Gorres Velayo & Co . 6760 Ayala Avenue Makati City Attention: Atty. Wilfredo U. Villanueva Principal, Tax Services Gentlemen : This refers to your letter dated September 16, 2005 requesting on behalf of your clients, BMS Pharmaceuticals Asia holdings B.V. ("BMS Asia BV"), Bristol-Myers Squibb Luxembourg International S.C.A. ("BMSLUX") and Bristol-Myers Squibb Company ("BMSC") , confirmation of your opinion that the transfer by BMSLUX and BMSC (collectively referred to herein as the Transferors) of their shares of stock in Bristol-Myers Squibb (Philippines), Inc. ("BMS Phils" or the "Company") to BMS Asia BV (also referred to herein as the Transferee) pursuant to a legitimate worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, is not subject to capital gains tax, donor's tax, and documentary stamp tax. It is represented that BMS Phils , with principal office at 2309 Don Chino Roces Avenue Extension, Makati City, is a domestic corporation primarily engaged in the business of manufacturing, sale and distribution of nutritional, pediatric and pharmaceutical products; that the Company has an authorized capital stock of Four hundred million pesos (P400,000,000) divided into Four million (4,000,000) shares at P100 par value; that as of December 31, 2004, BMS Phils has 1,397,500 issued and outstanding shares of stock; that BMSLUX is a corporation duly organized and existing under the laws of Luxembourg, with principal office at 2, Rue J. Hackin, L-1746 Luxembourg, Grand Duchy of Luxembourg; that it is an indirectly wholly owned subsidiary of BMSC; that BMSC, on the other hand, is a corporation duly organized and existing under and by virtue of the laws of the United States of America, with principal office at 345 Park Avenue, New York, New York 10154, U.S.A.; that BMS Asia BV is a corporation duly organized and existing under the laws of the Netherlands, with principal office at Vijzelmolenlaan 9, 3447 GX Woerden, the Netherlands; that it is primarily engaged in the acquisition and disposition of participations or interests in companies as well as the collaboration and management of such companies; that it is a wholly owned subsidiary of Bristol-Myers Squibb International Holdings Ireland Limited ("Ireland Holdco"), which in turn is a wholly owned subsidiary of BMSLUX; that since December 17, 2002, BMSLUX has held the beneficial ownership of 1,397,500 shares representing the entire capital stock of BMS Phils; that presently, BMSLUX is recorded in the Company's books as being the registered owner of 1,347,376 shares representing 96.5% of the outstanding capital stock, while BMSC is the registered owner of 50,119 shares (holding the same in trust for BMSLUX) representing 3.5% of the outstanding capital stock of BMS Phils; that five (5) shares are registered in the names of 5 individual nominee shareholders; that BMS Asia BV is 100% owned by Ireland Holdco, which in turn is 100% owned by BMSLUX; that as part of the worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, BMSLUX, as registered owner of 1,347,376 BMS Phils shares, and beneficial owner of the 1,397,500 BMS Phils shares, transferred said shares to BMS Asia BV; that simultaneously, BMSC, in its capacity as holder in trust for BMSLUX, likewise transferred the 50,119 BMS Phils shares to BMS Asia BV; that the said transfers were made pursuant to a Deed of Assignment that the parties executed on December 31, 2004; that BMSLUX, BMSC and BMS Asia BV subsequently executed an 'Amended and Restated Contribution Agreement' on August 30, 2005, amending the December 31, 2004 Deed of Assignment whereby BMSLUX and BMSC transferred and contributed to BMS Asia BV their respective registered shareholdings in BMS Phils without consideration; that such contribution shall instead be accounted for as share premium on the BMS Asia BV shares for Dutch purposes; that the 'Amended and Restated Contribution Agreement' merely amends the agreement of the parties in the earlier Deed of Assignment, and that the said amended agreement shall be considered effective as of December 31, 2004; that to illustrate the foregoing, you submitted a chart of the group structure showing the respective holdings of BMSLUX, BMS Asia BV and BMS Phils before and after the execution of the December 31, 2004 Deed of Assignment. In reply, please be informed as follows: 1. The transfer by BMSLUX and BMSC of their BMS Phils shares to BMS Asia BV pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to capital gains tax . HCITcA In numerous rulings issued by this Office, we ruled that the transfer of shares of stock in a Philippine company by a non-resident foreign corporation to another non-resident foreign corporation belonging to the same group of companies, said transfer being made pursuant to a legitimate worldwide corporate reorganization, is exempt from capital gains tax since there is no effective transfer of beneficial ownership of the shares in the Philippine company. There being no transfer of beneficial ownership, no gain will be realized by both the transferor and the transferee from the transfer of the shares ( BIR Ruling Nos. DA-209-05 dated April 27, 2005; DA-642-04 dated December 17, 2004; DA-500-03 dated December 11, 2003; DA-144-03 dated May 5, 2003; DA-130-03 dated April 25, 2003; 347-87 dated November 5, 1987; BIR Ruling No. 161-83 dated September 14, 1983 .) Based on the foregoing, this Office confirms your opinion that the transfer of the BMS Phils shares by BMSLUX and BMSC to BMS Asia BV, pursuant to a worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, is not subject to capital gains tax as (1) there is no effective transfer of beneficial ownership of the BMS Phils shares since Transferors and Transferee all belong to the Bristol-Myers Squibb Group of Companies and (2) the transfer is a mere re-alignment of stockholdings effectively consolidating beneficial and legal ownership of the BMS Phils shares. The transfers consolidated both the beneficial and legal ownership of 100% of the outstanding capital stock of BMS Phils into BMS Asia BV. As a result of such transfer, BMS Asia BV will now directly own two (2) BMS companies in the region, namely, BMS Phils and BMS Taiwan. Since there is no transfer of beneficial ownership, no gain will be realized by BMSLUX, BMSC and BMS Asia BV for income tax purpose. 2. The transfer by BMSLUX and BMSC of their BMS Phils shares to BMS Asia BV pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to donor's tax . This Office has consistently ruled that the transfer of property, without consideration, and primarily made for business considerations is not subject to donor's tax under Section 98 of the Tax Code because under such circumstances, no donative intent can be attributed to the transferor. ( BIR Ruling Nos. DA-174-98 dated April 30, 1998; DA-028-05 dated January 24, 2005; and DA-136-05 dated April 7, 2005 ) While the transfer of the BMS Phils shares was made without consideration, the same is not subject to donor's tax in the absence of donative intent under the above circumstances. It has been consistently held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. ( BIR Ruling No. DA-567-04 dated November 9, 2004; DA-338-03 dated October 7, 2003; DA-588-99 dated October 07, 1999; DA-403-99 dated July 13, 1999; DA-550-98 dated December 04, 1998 ; Perez vs. Commissioner of Internal Revenue , CTA Case No. 1707, February 10, 1969) The transfer of the BMS Phils shares was made primarily for business considerations, i.e.; in connection with a worldwide corporate reorganization and to consolidate beneficial and legal ownership into the transferee. Thus, while the transfer was made without consideration, the same is not subject to donor's tax since there is no donative intent that can be attributed to the transferors. Furthermore, both the Transferors and the Transferee are all subsidiaries and part of the Bristol-Myers Squibb Group of Companies and there is no transfer of beneficial ownership of the BMS Phils shares. The BIR has also ruled that there can be no donative intent on the part of the transferor in a transfer of properties to the member-beneficiaries, considering that a person or entity cannot donate properties the ownership of which belongs to themselves ( BIR Ruling No. DA-318-99 dated May 21, 1999 ). Thus, the transfer of BMS Phils shares by BMSLUX and BMSC to BMS Asia BV, without consideration and in connection with a global corporate restructuring, is not likewise subject to donor's tax. 3. The transfer by BMSLUX, BMSC and the five nominee stockholders of their BMS Phils shares to BMS Asia BV is subject to DST. The transfer by BMSLUX, BMSC and the five nominee stockholders of the BMS Phils shares to BMS Asia BV is subject to DST. ( BIR Ruling No. DA-209-2005 dated April 27, 2005 ) Furthermore, under Section 4 of Revenue Regulations No. 13-2004, implementing Section 176 of the Tax Code of 1997, as amended, all transfer of shares of stocks of a domestic corporation are subject to the DST upon execution of the deed transferring ownership or rights thereto, or upon delivery, assignment or indorsement of such shares in favor of another. No transfer of shares of stock shall be recorded unless DST thereon has been duly paid for in accordance with Section 201 of the same Tax Code. This ruling effectively revokes BIR Ruling No. 347-87 dated November 5, 1987, DA-144-03 dated May 5, 2003 , and the latest Ruling No. DA-642-04 dated December 17, 2004 , and other similar rulings in relation to the DST on the transfer of shares of stock is concerned. aSTECA 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 the ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC, Commissioner of Internal Revenue