BIR Ruling [DA-666-A-99]

December 3, 1999 BIR RULING [DA-666-A-99] 108-99 180 Balmeo Bautista & Peasales Law Offices Rm. 309 Margarita Building J.P. Rizal cor. Cardona Streets Makati City Attention: Atty. Leonides F. Balmeo Gentlemen : This refers to your letter dated October 1, 1999 stating that the Management and Board of Directors of Aboitiz Group of Companies which are engaged in various lines of business have agreed that when necessity arises, the companies which are financially capable will fund the subsidiary, affiliate and sister company which may be in need of financial assistance or backing; that the members of the group which have agreed to lend and or borrow or to extend and or receive inter company advances to/from the other group members are: Aboitiz Co., Inc. (ACO); Aboitiz Equity Ventures, Inc. (AEV); Aboitiz Transport Systems, Inc. (ATSI); Aboitiz Air Transport Corp. (AATC) now Aboitiz One, Inc. (Aboitiz One); Davao Light & Power Co., Inc. (DLPC); Aboitiz Jebsen Bulk Transport Corp. (ABOJEB); William Gothong & Aboitiz, Inc. (WG&A); Philippine Fast Ferry Holdings Corp. (PFFHC) formerly Aboitiz Parkview Transport Holdings, Inc.; Fil-Agri Holdings, Inc.; Pilmico Foods Corp. (PFC); Aboitiz Power Corp.; Philippine Hydropower Corp.; Acoland, Inc.; AEV Properties, Inc. (AEV Properties); Benguet Hydro Power Dev. Corp.; Bukidnon Hydropower Corp.; AEV Aviation, Inc.; Aboitiz Haulers Inc.; Aboitiz Containers Services, Inc.; Aboitiz Manufacturing Corp.; Aboitiz Orient Shipping Corporation; Aboitiz Power Corporation (APC); Abotrans Brokerage Corporation; Abomar Corp. (Abomar); Aboitiz Powersolutions, Inc.; Aboitiz Project TS Corp.; Aboitiz First Choice Services, Inc.; Aboitiz Shipping Corp.; Aboitiz Services, Inc.; Aboitiz Transport Express Agency, Inc.; ATS-Quix, Incorporated; Cebu Praedla Development Corp.; Cotabato Ice Plant, Inc.; Cotabato Light & Power Co., Inc. (CLPC); Cox Trucking, Inc.; FBM Aboitiz Marine, Inc. (FBMA); Fil-Am Foods, Inc.; Filscan Shipping; General Charterer, Inc.; Gorones Development Corp. (GDC); Hapag Lloyd Philippines, Inc. (HLP); Hydro Electric Development Corp. (HEDCOR); Jardine Aboitiz International Forwarders, Inc. (IJAIFI); Jebsens Maritime, Inc. (JMI); JMA Mining Corp.; K&A Metal Industries; Luzon Hydro Corporation; Mactan Oceanview Properties & Holdings, Inc.; Metaphil, Inc. (Metaphil); Northern Mini Hydro Corp.; Nor-Phil Ocean Shipping, Inc.; Overseas Bulk Transport, Inc.; Philippine Fast Ferry Corporation formerly Universal Aboitiz, Inc.; Pilmico-Mauri Foods Corporation; Philippine Hydropower Corp. (PHPC); Seatech, Inc.; Super-24 Our Store; Tagoloan Hydro Corp.; Total Distribution & Logistic Systems, Inc. (TDLSI); Tschudi & Eitzen Philippines, Inc.; Tsuneishi Heavy Industries (Cebu), Inc.; Tsunetetsu, Inc.; UAI-Superterminals, Inc.; Viking International Carriers, Inc.; WG&A Jebsen Ship Management, Inc.; and such other corporations which are members of the Aboitiz Group of Companies; that there are times when the subsidiaries or affiliates lack funds for their operational expenditures or for major asset acquisition but do not have the necessary funding, ACO, AEV, ATSI Aboitiz One, WG&A, ABOJEB, etc., or any of its financially capable subsidiaries or affiliates, in this situation, provides the necessary funding requirements to the requesting subsidiaries or affiliates through interest-free stockholders' advances; that in certain instances and due to force of circumstances ( i.e. they borrowed from the bank what they advanced), some of these advances are interest-bearing (passed-on interest); that pertinent board resolutions and the cash vouchers issued by the lender and acknowledged receipt by the borrower are the basis in recording the transactions in the books of both lender and borrower; that in the lender's books, the entry is a debit to Advances To Subsidiaries/Affiliates and a credit to Cash; that in the borrower's book, the entry is a debit to Cash and a credit to Advances Due From Subsidiaries/Affiliates; and that no loan agreements, no promissory notes and no debit or credit memos nor inter-company loan memos are issued in these transactions by the lender or borrower. Based on the aforecited facts, you now request for confirmation of your opinion that the above described inter-corporate advances between the Aboitiz Group of Companies are not subject to the documentary stamp tax imposed by Section 180 of the Tax Code of 1997. TCAHES In reply, please be informed that since the inter-company advances are not covered by loan agreements, promissory notes, debit and credit memos nor by inter-company loan memos and since the only documents relating to the inter-company advances are the board resolutions of the lenders and the cash vouchers issued by the lenders which are acknowledged by the borrowers, the said inter-company advances are not subject to documentary stamp tax. Such board resolutions of the lenders and the cash voucher acknowledged by the borrowers are not in the nature of promissory note subject to documentary stamp under Section 180 of the Tax Code of 1997. 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue