Luck Hock Venture Holdings, Inc.

March 4, 2010 BIR RULING [DA-(C-005) 038-10] Section 29; DA-683-2007 Luck Hock Venture Holdings, Inc. 20F LKG Tower, 6801 Ayala Avenue Makati City Attention: Mr. Ronald P. Sugapong Treasurer Gentlemen : This refers to your letter dated April 7, 2009 requesting for a confirmation that LUCK HOCK VENTURE HOLDINGS, INC. (LHVHI) is a publicly held corporation and therefore exempt from the Improperly Accumulated Earnings Tax pursuant to Section 29 of the Tax Code of 1997. It is represented that LUCK HOCK VENTURE HOLDINGS, INC. is a domestic corporation organized and existing under and by virtue of the laws of the Philippines, with office address at 20/F LKG Tower, 6801 Ayala Avenue, Makati City; that it is primarily engaged in the business of investment holding; that LHVHI is a publicly held corporation; that LHVHI is 60% owned by Orion Land, Inc. (OLI), and 40% owned by Gouman Philippines, Inc. (GPI). OLI and GPI are both domestic corporations organized and existing under Philippine laws, and hold the same offices at LHVHI. OLI is 100% owned by Prime Orion Philippines, Inc. (POPI), a domestic corporation organized and existing under Philippine laws; that POPI is publicly listed with the Philippine Stock Exchange since February 28, 1990; that GPI is wholly owned by Gouman Hotels, Ltd. (GHL), a corporation organized and existing under the laws of Bermuda; that GHL is 100% owned by Gouman Hotel & Resort Holdings, Sdn. Bhd. (GHRHS), a company organized and existing under Malaysian law; that 70% of GHRHS is owned by GuocoLand (Malaysia) Berhad (GMB), while 30% thereof is owned by Cheltenham Investments, Pte. Ltd. (CIPL); that GMB is a company publicly listed in Malaysia, and 67.92% of its outstanding shares is owned by GuocoLand Limited (GLL), which in turn is publicly listed in Singapore; that CIPL is wholly owned by GLL; that by virtue of GLL's stake in GMB and CIPL, GLL is the indirect owner of 77.54% of GHRHS; and that GLL is likewise the indirect owner of 77.54% of GHL and GPI. TDESCa In reply thereto, please be informed that Section 29 (A) and (B) of the Tax Code of 1997 on the imposition of IAET, states that "(A) In General. In addition to other taxes imposed by this Title, there is hereby imposed for each taxable year on the improperly accumulated taxable income of each corporation described in Subsection B hereof, an improperly accumulated earnings tax equal to ten percent (10%) of the improperly accumulated taxable income. (B) Tax on Corporation Subject to Improperly Accumulated Earnings Tax. (1) In General. The improperly accumulated earnings tax imposed in the preceding Section shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. (2) Exceptions. The improperly accumulated earnings tax as provided for under this Section shall not apply to: (a) Publicly-held corporations;" This kind of tax is being imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings, and as a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them by the corporation. However, the IAET shall not apply to, among others, publicly-held corporations. Furthermore, Section 4 of Revenue Regulations No. 2-2001, "Implementing the Provision on Improperly Accumulated Earnings Tax under Section 29 of the Tax Code of 1997," provides: "For purposes of these Regulations, closely-held corporations are those corporations at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations." For purposes of determining whether the corporation is a closely-held corporation, it is provided that 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. HDTISa Thus, in BIR Ruling No. 025-2002 dated June 25, 2002 and later reiterated in BIR Ruling No. DA 085-03 dated March 20, 2003, this Office ruled that such shares will be considered as being owned proportionately by the shareholders. The ownership of a domestic corporation for purposes of determining whether it is closely-held corporation or a publicly-held corporation is ultimately traced to the individual shareholders of the parent company. Accordingly, where at least 50% of the outstanding capital or at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at least 21 or more individuals, the corporation is considered publicly-held corporation as the term is defined in Revenue Regulations No. 2-2001. SUCH BEING THE CASE, the ownership of a domestic corporation (like LHVHI) for purposes of determining whether it is a closely-held corporation or a publicly-held corporation is ultimately traced to the individual shareholders of the ultimate parent-company. Since LHVHI is 60% owned by OLI, which is an indirectly wholly-owned subsidiary of POPI, the 60% shares of LHVHI will be considered as being owned proportionately by GHL shareholders. In applying the foregoing principles, it is clear that LHVHI is a publicly-held corporation. LHVHI is 60% indirectly-owned subsidiary of its ultimate parent company, OLI, on account of the following: (a) 40% of the capital stock of the LHVHI is owned by GPI; (b) 100% of the capital stock of GPI is owned by GHL; (c) 100% of the capital stock of GHL is owned by GMB. Because the shares of OLI, the ultimate parent company of LHVHI, are owned by more than 20 individuals, 60% of LHVHIs' shares is indirectly owned by more than 20 individuals. It follows that at least 60% of the capital stock of LHVHI, comprising the 60% shares indirectly owned by stockholders of POPI, plus any shares directly owned by an individual, is owned by more than 20 individuals. Under the premises, LHVHI qualifies as a publicly-held corporation not subject to the improperly accumulated earnings tax. WHEREFORE, in view of the foregoing, this Office holds that LHVHI is considered a publicly-held corporation, and therefore, is exempt from the imposition of IAET under Section 29 (B) (2) (a) 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. cHDaEI Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner