Star Asset Management ROPOAS, Inc.

May 18, 2010 BIR RULING [DA-(C-012) 067-10] Section 39 (A) (1) & RR 7-03; BIR Ruling Nos. 161-90, 045-99, DA-510-07, DA-(C-130) 413-08 & DA-(VAT-010) 032-09 Star Asset Management ROPOAS, Inc. c/o 614 Marbella Condominium 2071 Roxas Boulevard Manila Attention: Ms. Elvira U. Poon Ms. Janet T. Tan Madam : This refers to your letters both dated February 15, 2010 requesting for confirmation of your opinion that the sale of real properties by Star Asset Management ROPOAS, Inc. ("Star Asset") in favor of Eastcove Inc. and Newcove Inc., respectively is subject to creditable withholding tax and documentary stamp tax, based on the fair market value. CacTIE As represented, Star Asset is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is registered with the Securities and Exchange Commission (SEC) on December 14, 2006 with Company Registration No. CS200619425 and Company TIN 006-590-370. The primary purpose for which Star Asset is organized to invest in, or acquire non-performing assets (NPAs) of financial institutions (FIs), including real or other properties acquired by such FIs through foreclosure or dacion. It is likewise allowed by its charter to sell, transfer or otherwise dispose of such assets to third parties. On February 11, 2010, Star Asset sold its real properties described as Block 4 lots 3 to 6 (consisting of 4 vacant lots) and Block 2 lots 1 to 3 (consisting of 3 vacant lots) located at Brgy. Tambo Asiaworld City, Paraaque City to Eastcove Inc. represented by Ms. Elvira U. Poon and Newcove Inc. represented by Ms. Janet T. Tan, respectively on "as-is, where-is" basis. An ocular inspection would show that subject properties are basically raw lands and have remained undeveloped to this day. The surrounding properties are abandoned, idle, vacant or residential. There are still no access roads to these properties. Thus, you opine that the current commercial values of the properties are not quite comparable with other properties along Asiaworld City, and substantial investments will still be necessary before the properties can become as commercially or residentially viable. In reply, please be informed that prior to the application of the appropriate tax rates, the character of the real property involved in the transaction must be determined, i.e. , whether the property is capital or ordinary asset. Under Section 39 (A) (1) of the Tax Code, "capital asset" is negatively defined as property held by the taxpayer (whether or not connected with his trade or business), but does not include (i) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or (ii) property held by the taxpayer primarily for sale or lease to customers in the ordinary course of trade or business; or (iii) property used in trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or (iv) real property used in trade or business of the taxpayer. (BIR Ruling No. DA395-07 dated July 19, 2007) DcSACE Corollary thereto, only such real properties held primarily for sale to customers in the ordinary course of business, or which would be properly included in the inventory of such taxpayer, if on hand at the close of the taxable year, or used in his/her trade or business are appropriately classified as ordinary assets. Otherwise stated, real properties other than those enumerated under Section 39 (A) (1) of the Tax Code and Section 2 (b) of Revenue Regulations (RR) No. 7-2003 will be properly treated as capital assets. (BIR Ruling No. DA395-07 dated July 19, 2007) For purposes of determining whether a particular real property is a capital asset or ordinary asset, a real property shall be classified in respect to taxpayers engaged in the real estate business i.e. , all real properties acquired by the real estate dealer shall be considered as ordinary assets pursuant to RR No. 7-2003. Under the aforesaid regulations, the sale or disposition of real properties not considered capital assets, and therefore, deemed ordinary assets, shall be subject to the creditable withholding tax (expanded) under Section 2.57.2 (J) of RR No. 2-98, as amended by RR No. 6-2001. The creditable withholding tax shall be based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale of property which is an ordinary asset of the seller imposed upon the withholding agent/buyer in accordance with the rates ranging from 1.5%, 3% and 5%, and consequently to the ordinary income tax under Sections 24 (A) (1) (c), 25 (A) (1), 27 (A), or 28 (A) (1), of the Code, as the case may be. (Section 2.57.2 (J) of RR No. 2-98, RR 6-2001, Section 4 (c) (ii), RR 7-2003, BIR Ruling Nos. 161-90 dated August 22, 1990, 170-90 dated September 3, 1990, 027-02 dated July 3, 2002, DA-(C-130) 413-08 dated November 11, 2008 and DA-(VAT-010) 032-09 dated January 22, 2009) For the above purpose, "gross selling price" shall mean the consideration stated in the sales document or the fair market value determined in accordance with Section 6 (E) of the Tax Code, whichever is higher. Accordingly, the basis of the creditable withholding tax shall be the zonal value or the amount as stated in the sales document, whichever is higher. (BIR Ruling No. DA-510-07 dated September 25, 2007) On the other hand, a "real estate dealer" is defined under RR No. 4-2007 to include any person engaged in the business of buying, developing, selling, exchanging real properties as principal and holding himself out as a full or part-time dealer in real estate. Since Star Asset is engaged in acquiring and selling/disposing NPAs, it is considered a real estate dealer, thus, engaged in the real estate business. Accordingly, subject properties are considered ordinary assets. Therefore, the sale thereof is subject to the creditable withholding tax under RR No. 2-98, as amended by RR No. 6-2001 and to the 12% value-added tax (VAT) pursuant to Section 106 (A) (1) of the Tax Code as implemented by RR No. 16-2005, as amended. (BIR Ruling Nos. DA-(C-130) 413-08 dated November 11, 2008 and DA-(VAT-010) 032-09 dated January 22, 2009) HDATSI Finally, the deed executed for the purpose of said sale of ordinary assets is subject to DST at the rate of P15.00 for each P1,000.00 or fractional part thereof in excess of P1,000.00, or 1.5% of the consideration or fair market value of the properties, whichever is higher, pursuant to Section 196 of the Tax Code. (BIR Ruling Nos. 170-90 dated September 3, 1990, 045-99 dated April 7, 1999 and DA-(C-130) 413-08 dated November 11, 2008) 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 as null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group