BIR Ruling [DA-500-03]

December 11, 2003 BIR RULING [DA-500-03] 40; S40-103-02 Zurlex Property Holding Corporation SSHG Law Centre 105 Paseo de Roxas Makati City Attention: Ms. Cecilia S. Burayag Authorized Representative Gentlemen : This refers to your letter dated September 5, 2003 stating that Traparco AG (Traparco) is a Swiss corporation with registered address at Baarestrasse 63, 6300 Zug, Switzerland; that Traparco owns 237 shares of the capital stock of Zurlex Property Holding Corporation (Zurlex), a corporation duly organized and existing under the laws of the Philippines with principal office address at the 4F SycipLaw All-Asia Center, 105 Paseo de Roxas, Makati City; that on May 15, 2001, Traparco entered into a merger agreement with Diethelm Keller Holding AG (DKHA), another Swiss corporation with registered address at Talstrasse, 8001 Zurich, Switzerland, with DKHA as the surviving corporation; that the merger resulted in the transfer of the total assets of Traparco to DKHA, including the Zurlex shares; that on July 26, 2001, DKHA, as the legal successor of Traparco AG, executed an Assignment of Stock assigning all interest in the 237 shares in Zurlex to DKHA; that on October 4, 2001, DKHA spun its Services Asia Division and 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; and that the transfer included the Zurlex shares. In connection therewith, you now request a ruling that the transfer by DKHA, a Swiss corporation, of its shareholdings in Zurlex Property to DKSA, another Swiss corporation, is not subject to tax since the transfer is part of a worldwide corporate reorganization and that no gains will be realized both by DKHA and DKSA for income tax purposes relative to the said transfer. In reply thereto, please be informed that in BIR Ruling No. 347-87 dated November 5, 1987 wherein the transaction involved the transfer of Philippines 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 Philippines tax." Accordingly, this Office opines and so holds that the transfer by DKHA of its shares of stock in Zurlex to DKSA is in pursuance to a legitimate worldwide corporate reorganization. As the transfer was from a parent company to a wholly-owned subsidiary, there is no effective transfer of beneficial ownership. Since there is no effective transfer of beneficial ownership, no gain was realized by both DKHA and DKSA for income tax purposes. IDSETA 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service