Martinez Vergara Gonzalez & Serrano

December 20, 2007 BIR RULING [DA-678-07] DST, Secs. 174 & 175; DA-326-05 Martinez Vergara Gonzalez & Serrano Suite 2401, The Orient Square F. Ortigas, Jr. Road, Ortigas Center 1600 Pasig City Attention: Attys. Elmer B. Serrano, Gilbert S. Viloria & Gwyneth S. Ong Gentlemen : This refers to your letter dated December 10, 2007 requesting on behalf of your client, Crown Equities, Inc. ("CEI"), confirmation of your opinion that the issuance of new shares of stock to replace previously issued and outstanding shares of stock pursuant to a decrease in capital stock is exempt from the payment of documentary stamp tax (DST) imposed under Section 174 of the Tax Code of 1997, as amended. It is represented that CEI, a corporation duly registered with the Securities and Exchange Commission (SEC) and whose shares of stock are listed and traded in the Philippine Stock Exchange, Inc. (PSE), currently has an authorized capital stock of Three Billion Pesos (P3,000,000,000.00) divided into Three Billion (3,000,000,000) common shares with par value of One Peso (P1.00) per share. On June 19, 2007, the Board of Directors of CEI unanimously approved the capital restructuring of CEI, as follows: 1. A decrease in the authorized capital stock from Three Billion Pesos (P3,000,000,000.00) divided into Three Billion (3,000,000,000) common shares with par value of One Peso (P1.00) per share to Two Billion Four Hundred Million Pesos (P2,400,000,000.00) divided into Two Billion Four Hundred Million (2,400,000,000) common shares with par value of One Peso (P1.00) per share; and a corresponding decrease in its subscribed capital stock from One Billion Six Hundred Ninety Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Five Pesos (P1,699,999,995.00) divided into One Billion Six Hundred Ninety Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Five (1,699,999,995) common shares with par value of One Peso (P1.00) per share to One Billion Three Hundred Fifty Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Six Pesos (P1,359,999,996.00) divided into One Billion Three Hundred Fifty Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Six (1,359,999,996) common shares with par value of One Peso (P1.00) per share, as follows: CETIDH Decrease in Authorized Capital Stock From To Difference Amount P3,000,000,000.00 P2,400,000,000.00 P600,000,000.00 No. of Shares 3,000,000,000 2,400,000,000 600,000,000 Par Value per shares P1.00 P1.00 N/A Decrease in Subscribed Capital Stock From To Difference Amount P1,699,999,995.00 P1,359,999,996.00 P339,999,999.00 No. of Shares 1,699,999,995 1,359,999,996 339,999,999 Par Value per shares P1.00 P1.00 N/A 2. The application of the existing additional paid-in capital of Four Hundred Seven Million Two Hundred Sixty Nine Thousand Eight Hundred Seventy Nine Pesos (P407,269,879.00) as per the audited financial statements as of December 31, 2006 and such portion of the additional paid-in capital of Three Hundred Thirty Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Nine Pesos (339,999,999.00) arising form the decrease in authorized capital stock against the capital deficit of Six Hundred Twenty Eight Million Six Hundred Ninety Nine Thousand Six Hundred Four Pesos (628,699,604.00), as follows: Amount Capital Deficit P628,699,604.00 Less: Existing APIC (P407,269,879.00) Less: APIC form Decrease in Capital Stock (P339,999,999.00) Outstanding APIC P118,570,274.00 3. Finally, a stock split reducing the par value of the common shares from One Peso (P1.00) per share to Ten Centavos (P0.10 per share thereby (a) increasing the number of its authorized common shares from Two Billion Four Hundred Million (2,400,000,000) common shares with a par value of One Peso (P1.00) to Twenty Four Billion (24,000,000,000) common shares with a par value of Ten (P0.10) per share; and (b) increasing the number of its subscribed common shares to Thirteen Billion Five Hundred Ninety Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Sixty (13,599,999,960) common shares with a par value of Ten Centavos (P0.10) per share. Pursuant to the stock split each stockholder will be entitled to Eight (8) common shares at the reduced par value of Ten Centavos (P0.10) per share in replacement of every One (1) common share currently held. Stock Split From To Par Value P1.00 P0.10 Authorized Common Shares 2,400,000,000 24,000,000,000 Subscribed and Paid-Up Capital Stock 1,359,999,996 13,599,999,960 The shareholders representing at least two-thirds (2/3) of the outstanding capital stock of CEI ratified the proposed capital restructuring at the Annual Shareholders' Meeting held on August 28, 2007. CEIHcT The application for approval of the decrease in capital stock and the equity restructuring of CEI is currently pending with the SEC. CEI will issue Thirteen Billion Five Hundred Ninety Million Nine Hundred Ninety Nine Thousand Nine Hundred Sixty (13,599,999,960) common shares with a par value of Ten Centavos (P0.10) per share in place of the previously issued and outstanding One Billion Three Hundred Fifty Nine Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Six (1,359,999,996) common shares with par value of One Peso (P1.00) per share. CEI is of the view that such issuance of shares is not subject to DST since the issuance of the new shares is merely in replacement of the previously issued and outstanding shares. Consequently, since CEI is not "issuing new shares" but merely re-denominating its already existing and outstanding capital stock at a par value of Ten Centavos (P0.10) per share, it is therefore not subject to the DST imposed under Section 174 of the Tax Code of 1997, as amended. In reply thereto, please be informed that in BIR Ruling No. DA-326-05, dated July 22, 2005, this Office had the occasion to rule that the issuance of new shares of stock to replace previously issued and outstanding shares of stock pursuant to a decrease in capital stock is exempt from the payment of documentary stamp tax under Section 175 of the Tax Code of 1997, as amended. The justification of the said exemption is that the surrender of the certificates of stock by the stockholders is a necessary consequence of the decrease in the capital stock of the corporation, and that in order to reflect the corrected number of shares therein, the stockholders of record should transfer and surrender their old certificates of stock to the corporation, without any monetary consideration, but only for the purpose of replacing the old stock certificates into new ones. In other words, there is no effective transfer of beneficial ownership over the said shares. In view thereof, and since the new shares of CEI with par value of Ten Centavos (P0.10) per share will be issued to replace its old shares with par value of One Peso (P1.00), the issuance of Thirteen Billion Five Hundred Ninety Million Nine Hundred Ninety Nine Thousand Nine Hundred Sixty (13,599,999,960) new common shares to its stockholders of record with par value of Ten Centavos (P0.10) per share pursuant to the reduction of CEI's capital stock, therefore, will not be subject to the DST imposed under Section 175 of the Tax Code of 1997, as amended. Moreover, neither said replacement of shares of stock subject to the DST imposed under Section 174 of the same Tax Code since the issuance of the new shares is merely in replacement of the previously issued and outstanding ones therefore not to be considered as original issuance of shares of stock as contemplated therein. 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. CTDacA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service