BIR Ruling [DA-516-03]

December 16, 2003 BIR RULING [DA-516-03] 29; RR 2-2001; DA-203-2002 Wyeth Philippines, Inc . 2236 Chino Roces Avenue P.O. Box 1207 MCPO 1252, Makati City Attention: Mr. Renato B. Maisog Accounting Manager Gentlemen : This refers to your letter dated January 23, 2003 requesting confirmation that Wyeth Philippines, Inc. ("WPI"), is a publicly held corporation as defined under Revenue Regulations No. 2-2001, and hence, exempt from Improperly Accumulated Earnings Tax (IAET) imposed under Section 29 of the Tax Code of 1997. It is represented that WPI is a corporation duly organized and existing under the laws of the Philippines with office address at 2236 Chino Roces Avenue, Makati City; that it is engaged in the business of manufacturing, buying, selling, importing, exporting, dealing with pharmaceutical products as provided for in its Articles of Incorporation; that it is wholly-owned subsidiary of Wyeth USA (previously American Home Products Corporation); that Wyeth (USA) is a corporation organized and existing under the laws of the state of Delaware, USA, whose shares are listed and traded in the New York Stock Exchange (NYSE); that as of year-end 2001, Wyeth (USA) has 64,698 shareholders holding a combined 1,330,809,000 shares of common stock (as shown in its 2001 Annual Report); and that the twenty largest shareholders of Wyeth (USA) owned an aggregate of 29.93% of Wyeth's issued and outstanding common shares. 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 Wyeth Philippines, Inc., a domestic corporation, is a wholly-owned subsidiary of Wyeth USA, a publicly-owned corporation, its shares shall be considered as being owned proportionately by the shareholders of Wyeth USA. DaCTcA Ultimately, the question of whether Wyeth Philippines, Inc. 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 Wyeth Philippines, Inc. 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group