BIR Ruling [DA-524-05]

December 29, 2005 BIR RULING [DA-524-05] 27; DA-475-05/DA-209-05 SGV & Co . 6760 Ayala Avenue Makati City Attention: Mr. Joel L. Tan-Torres Partner, Tax Services Gentlemen : This refers to your letter dated June 7, 2005 requesting for a confirmation on behalf of your client, Pozzolanic Philippines, Inc. (PPI) that the proposed transfer of its shares from Pozzolanic Holdings HK Limited (Pozzolanic HK) and Pozzolanic International Investment Pte. Ltd. (Pozzolanic Singapore) to Pemberton Limited is not subject to tax since the transfer is pursuant to a corporate reorganization. The facts, as you represented are as follows: 1. PPI is a corporation incorporated under the laws of the Philippines, 68% of which is owned by Pozzolanic Singapore and 32% by Pozzolanic HK; 2. Pozzolanic Singapore, Pozzolanic HK and Pemberton Limited are all owned 100% by Tandom Pty. Ltd., a corporation incorporated under the laws of Australia; 3. Pursuant to the reorganization being undertaken by the Tandom Group of Companies aimed at rationalizing and consolidating the shareholdings in PPI, Pozzolanic Singapore and Pozzolanic HK intend to transfer their respective shares in PPI to Pemberton Limited. 4. Currently, Tandom Pty. Ltd. holds beneficial ownership of the PPI shares through two entities, Pozzolanic Singapore and Pozzolanic HK. Upon completion of the corporate reorganization and as a result of the proposed transfer, Tandom Pty. Ltd. will hold beneficial ownership of the PPI shares through a single entity, which is Pemberton Limited. HSIaAT In reply, please be informed that since the proposed transfer of PPI shares from Pozzolanic Singapore and Pozzolanic HK to Pemberton Limited will be in pursuance to a legitimate reorganization and considering that PPI, Pozzolanic Singapore, Pozzolanic HK and Pemberton Limited all belong to the Tandom Group of Companies, and considering further, that the transferors and transferee being all subsidiaries of the Tandom Group of Companies, the beneficial ownership of the PPI shares will remain within the Tandom Group of Companies, no effective transfer of beneficial ownership will take place and no gain will be realized by Pozzolanic Singapore and Pozzolanic HK for income tax purposes. (BIR Ruling No. DA-642-04 dated December 17, 2004) In numerous rulings issued by this Office, we ruled that the transfer of shares of stock in a Philippine company by a nonresident foreign corporation to another nonresident 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 shares (BIR Rulings No. DA-475-05 dated November 21, 2005; 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.) This Office has also 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) Lastly, the transfer by Pozzolanic Singapore and Pozzolanic HK to Pemberton Limited of their shares in PPI is subject to DST. (BIR Rulings No. DA-475-05 dated November 21, 2005; DA-209-05 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 stock of a domestic corporation are subject to the DST upon execution of the deed transferring ownership of rights thereto, or upon delivery, assignment of 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 is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. aATESD Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue