Puno and Puno Law Offices

October 11, 2007 BIR RULING [DA-535-07] 127 (B) 072-97; 035-99; 001-06; 327-07 Puno and Puno Law Offices 12th Floor, East Tower Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Atty. Ma. Elizabeth E. Peralta-Loriega & Atty. Gracejenn Vizcarra Giron Gentlemen : This refers to your letter dated October 8, 2007 requesting on behalf of your client, San Miguel Brewery ("SMB"), confirmation to the effect that the listing of shares with the Philippine Stock Exchange ("PSE") will not be subject to the Initial Public Offering ("IPO") tax imposed under Section 127 (B) of the Tax Code of 1997. CTcSIA It is represented that SMB is a corporation duly organized and existing under the laws of the Philippines, with core business activity to manufacture beer of all kinds and classes and to prepare, purchase and sell malt, barley and other cereals, flour, yeast and other products which might be used in connection with the manufacture of beer; that as of September 17, 2007, SMB is wholly owned by San Miguel Corporation ("SMC"); that SMC, on the other hand, is a corporation duly organized and existing under the laws of the Philippines, whose stocks are listed and traded in the PSE; that as of August 31, 2007, the top twenty shareholders of SMC consisting of 81.74% of its outstanding capital stock are Kirin Holdings Company, Ltd., SM Investments Corporation, PCD Nominee Corporation (Filipino), San Miguel Corporation Retirement Plan, ASC Investors, Inc., ARC Investors, Inc., PCD Nominee Corporation (Non-Filipino), Primavera Farms, Inc., Toda Holdings, Inc., Black Stallion Ranch, Inc., Misty Mountains Agricultural Corp., Pastoral Farms, Inc., Te Deum Resources, Inc., Rock Steel Resources, Inc., San Miguel Officers Corps., Inc., Roxas Shares, Inc., Silver-Leaf Plantations, Inc., Meadow-Lark Plantations, Inc., AP Holdings, Inc. and Valhalla Properties Limited, Inc. that Kirin Holdings Company, Limited (formerly known as Kirin Brewery Co. Limited), on the other hand, is a corporation duly organized and existing under the laws of Japan whose stocks are listed and traded on the Tokyo Stock Exchange, Osaka Securities Exchange, Nagoya Stock Exchange, Fukuoka Stock Exchange and Sapporo Stock Exchange; and that SM Investments Corporation, on the other hand, is a corporation duly organized and existing under the laws of the Philippines whose stocks are listed and traded on the PSE. From the foregoing, you are requesting confirmation of your opinion that at the time of the IPO, SMB is not a closely held corporation, as such, not subject to IPO tax under Section 127 (B) of the Tax Code, as amended. In reply thereto, please be informed that Section 127 (B) of the 1997 Tax Code, as amended, provides as follows: DCASIT "SEC. 127. Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering. xxx xxx xxx (B) Tax on shares of stock sold or exchanged through initial public offering. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporation, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange. Up to twenty-five percent (25%) 4% Over twenty-five percent (25%) but not over thirty three and one third percent (33 1/3%) 2% Over thirty-three and one third percent (33 1/3%) 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering. For purposes of this Section, the term "closely held corporation" means any corporation at least fifty percent (50%) in value of the outstanding capital stock of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied. cHaCAS (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. xxx xxx xxx (Italics supplied) The IPO tax would apply only to corporations which are considered "closely held", meaning that at least 50% in value of the outstanding voting shares of all classes is owned directly or indirectly by or for not more than 20 individuals. In the case where the shares of stock in the corporation to be listed are owned by another corporation, such shares will be considered as being owned proportionately by the latter's shareholders. Since SMB is owned by a publicly listed corporation SMC, at the time of the application to list the shares of SMB with the PSE, the corporate shareholding of SMC in SMB will be considered as being proportionately owned by SMC's shareholders. Taking it further, since SMC is owned by two other publicly listed corporations, Kirin Holdings Company, Ltd. and SM Investments Corporation, the shareholdings of Kirin Holdings Company, Ltd. and SM Investments Corporation in SMB through SMC will still be proportioned among the shareholders of Kirin Holdings Company, Ltd. and SM Investments Corporation. SDHAcI In the case of a multi-tiered corporation, the stock attribution rule must be allowed to run continuously along the chain of ownership until it finally reaches the individual stockholders. This is in consonance with the "grandfather rule" adopted in the Philippines under Section 96 of the Corporation Code (Batas Pambansa Blg. 68) which provides that notwithstanding the fact that all the issued stock of a corporation are held by not more than twenty persons, among others, a corporation is nonetheless not to be deemed a close corporation when at least two thirds of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. (BIR Ruling Nos. DA-327-2007 dated 14 June 2007; DA-001-06 dated January 4, 2006; 072-97 dated July 02, 1997). Since the shareholders of SMC, consist of possibly hundreds and thousands of individuals, SMB cannot be considered as a "closely held corporation" prior to its listing with the PSE. Accordingly, this Office is of the opinion as it hereby holds that the listing of shares of stock of SMB with the PSE will not be subject to IPO tax because prior to the listing of shares, SMB is not a closely held corporation as defined under Section 127 (B) of the Tax Code, as amended. (BIR Ruling Nos. DA-327-2007 dated 14 June 2007; DA-001-06 dated January 4, 2006; 035-99 dated 25 March 1999). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon its investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. CAaDTH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service