D.M. Wenceslao & Associates, Inc. (DMWAI) Wendel Holdings Co., Inc. (WHCI) Both of 306 E. Rodriguez Sr., Blvd., Q.C. Opinion Ruling S-40-44-98, 04-17-98 S-40-128-99, 06-25-99 Exchange of Real Property for Shares of Stock

October 8, 1999 BIR RULING [DA-601-99] RDO No. 39, South Quezon City 3/F BIR Bldg., Quezon Avenue cor. Scout Santiago, Quezon City Attention: Ms . Corazon C . Pangcog Revenue District Officer SUBJECT : D.M. Wenceslao & Associates, Inc. (DMWAI) Wendel Holdings Co., Inc. (WHCI) Both of 306 E. Rodriguez Sr., Blvd., Q.C. Opinion Ruling S-40-44-98, 04-17-98 S-40-128-99, 06-25-99 Exchange of Real Property for Shares of Stock M a d a m : This is in connection with your letter dated September 23, 1999 requesting for clarification or resolution regarding the basis of computing the documentary stamp tax (DST) to be collected on the subscribed capital stock of DMWAI in line with Revenue Memorandum Order No. 8-98 dated February 10, 1998. You stated that in accordance with BIR Ruling No. S-40-44-98 dated April 17, 1998, the basis of the DST is the total value of the subscription by WHCI of Nine Million (9,000,000) shares of stock in DMWAI equivalent to P900,000,000.00 while under BIR Ruling No. S-40-128-99 dated June 25, 1999, it is on the reduced amount of the subscribed and paid-up subscription of P350,000,000.00 of WHCI. LibLex The facts surrounding this case would show that on March 1, 1996, DMWAI increased its authorized capital stock from One Hundred Million Pesos (P100,000,000.00) divided into One Million (1,000,000) shares with a par value of One Hundred Pesos (P100.00) per share to One Billion Pesos (P1,000,000,000.00) divided into Ten Million (10,000,000) shares with a par value of One Hundred Pesos (P100.00) per share; that WHCI subscribed Nine Million (9,000,000) shares valued at Nine Hundred Million Pesos (P900,000,000.00) out of the Nine Million (9,000,000) increase in the authorized capital stock with an aggregate value of P900,000,000.00 at a par value of P100.00 per share; that as per Deed of Exchange and Assignment dated May 8, 1998, WHCI paid P350,000,000.00 worth of real properties as its partial payment for the subscription of 9,000,000 shares of DMWAI; that as a result thereof, WHCI gained control over DMWAI by owning 95.25% of its total voting stock; that on December 29, 1997, DMWAI paid to Pilipinas Bank as per official receipt no. 007578, the amount of P3,500,000.00 as DST on the P350,000,000.00 subscription. The issue now before us is whether the basis for computing the documentary stamp tax is on the total subscription of P900,000,000.00 or the total subscribed and paid-up of P350,000,000.00. With due respect, there is no discrepancy between BIR Ruling No. S-40-44-98 dated April 17, 1998 and BIR Ruling No. S-40-128-99 dated June 25, 1999 as to the basis of computing the DST. Take note that the dispositive portion of both rulings state that "Finally, the shares of stock to be issued by DMWAI, which in all probability are original issues, are subject to the documentary stamp tax based on the total subscription which shall attach upon acceptance by the corporation for the stockholders' subscription regardless of the actual delivery of the certificates of stock pursuant to Sec. 175 of the Tax Code." (emphasis supplied) It would appear that upon the request of WHCI on January 21, 1998, the Board of Directors of DMWAI resolved the request of WHCI to reduce its subscription in the increase of capital stock of DMWAI up to the level of WHCI's paid subscription which is P350,000,000.00. Accordingly, on May 8, 1998 an amended Deed of Exchange and Assignment was executed by WHCI represented by Emerenciana A. Paras and DMWAI represented by Dominador S. Dayrit. However, the same amended Deed of Exchange and Assignment provides in its "WHEREAS" portion that "WHEREAS, the TRANSFEROR and the TRANSFEREE have agreed to enter into a contract of exchange whereby the TRANSFEROR would transfer title and ownership of the above-described real property worth P350,000,000.00 to the TRANSFEREE representing its partial payment for the subscription of NINE MILLION (9 , 000 , 000) shares of the latter's shares of stocks. "NOW THEREFORE, for and in consideration of the foregoing premises, the TRANSFEROR does hereby cede, transfer, assign and convey unto the TRANSFEREE the property above-described for and in consideration of and in partial payment for 9 , 000 , 000 of the SECOND PARTY'S shares of stock ." (Italics provided) Although the parties had agreed to reduce WHCI's subscription in the increase of the capital stock of DMWAI up to the level of WHCI's paid subscription which is P350,000,000, the same intention was abandoned when subsequently, the parties entered into an amended Deed of Exchange and Assignment which clearly reflected the new intention of the parties. The amended Deed of Exchange and Assignment reverted to the parties' original intention to subscribe to 9,000,000 shares of DMWAI and for which a partial payment was made in the amount of P350,000,000.00. Had the parties maintained its intention to reduce WHCI's subscription, the amended Deed of Exchange and Assignment would have reflected this intention. On the contrary, the amended Deed merely confirmed the original intention to subscribe to 9,000,000 shares of DMWAI despite of the opportunity to revoke the Deed after the parties had asked for an amended ruling. llcd Accordingly, the basis for computing the DST is as stated in both rulings, on the total subscription which is P900,000,000.00 and not on the total subscribed and paid-up of P350,000,000.00 as has been constantly held by this Office. Very truly yours, ERLINDA O. MATIC Assistant Commissioner (Legal Service) By: (SGD.) MILAGROS V. REGALADO Head Revenue Executive Asst .