Quisumbing Torres

August 8, 2008 BIR RULING [DA-(C-033) 124-08] 24 (C); DA-088-06 Quisumbing Torres 12th Floor, Net One Center 26th Street corner 3rd Avenue Crescent Park West, Bonifacio Global City Taguig City Attention: Atty. Dennis G. Dimagiba and Atty. Jose Jaime V. Cruz Gentlemen : This refers to your letter dated November 23, 2007, requesting on behalf of your client, ICT International, Inc. (ICTII), confirmation of your opinion that the assignment of ICTIIs shares in the capital stock of ICT Marketing Services, Inc. (ICTMSI) to ICT Group Netherlands B.V. (ICTGNBV) as part of the corporate reorganization involving the foregoing affiliated companies, with beneficial ownership in the shares of stock of ICTMSI remaining within the ICT Group of Companies, is not subject to capital gains and donors tax. It is represented that ICTII is a corporation organized and existing under the laws of the State of Delaware, with address at 300 Delaware Avenue, Suite 1224, Wilmington, Delaware, U.S.A.; that ICTII is organized to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware; that ICTMSI is a corporation organized and existing under the laws of the Republic of the Philippines with address at the 19th Floor, RCBC Plaza, Tower 2, 6819 Ayala Avenue, Makati City, Metro Manila; that ICTMSI was incorporated and registered with the Securities and Exchange Commission (SEC) on July 12, 2005 with SEC Reg. No. CS2005-11973; that it is authorized to engage in and operate, conduct and maintain the business of a customer support center providing integrated customer relationship management services, including sales support, marketing support, customer care, data management services and CRM technologies, worldwide through telephone, email and internet-based support; that ICTGNBV is a corporation organized and existing under the laws of the Netherlands with office address at Prins Bernardplein 200, 1097 JB Amsterdam, the Netherlands; that at present, ICTII is the registered owner of 577,595 shares of the capital stock of ICTMSI, with said shares having a par value of P1.00 per share for a total par value of P57,759,500.00; that ICTII is also the beneficial owner of five (5) shares of the capital stock of ICTMSI which are registered in the names of and held in trust separately by five (5) individuals for and on behalf of ICTII; that ICTII is also the sole registered owner of the capital of ICTGNBV, consisting of an issued and paid-up capital of 180 shares with an issued value of EURO 100.00 each; that on June 27, 2007, ICTII and ICTGNBV entered into a Capital Contribution Agreement, pursuant to which ICTII agreed to transfer and contribute its rights, title and interests in the Shares and the Nominee Shares in ICTMSI to ICTGNBV as a contribution in kind to the existing issued and paid-up capital of ICTGNBV; that the Capital Contribution Agreement also aims to reorganize and simplify ICTII's equity interests in its affiliates ICTMSI and ICTGNBV by realigning its shareholdings in ICTMSI through ICTGNBV; that to implement and carry out the foregoing restructuring exercise, ICTII executed a Deed of Assignment over the Shares and Nominees Shares in ICTMSI in favor of ICTGNBV on 27 June 2007; that as a result of the foregoing share transfer, ICTGNBV will become the new direct owner of the Shares and Nominee Shares in ICTMSI; that ICTGNBV will also continue to be a direct subsidiary of ICTII; and that beneficial ownership in the Shares and the Nominee Shares in ICTII through its wholly-owned subsidiary, ICTGNBV. CEaDAc In reply thereto, please be informed that, in numerous rulings issued by this Office, we ruled that the transfer of shares of stock in a Philippine company by a non-resident foreign corporation to another non-resident foreign corporation belonging to the same group of companies, said transfer being made pursuant to a legitimate worldwide corporate reorganization, is exempt from capital gains tax since there is no effective transfer of beneficial ownership of the shares in the Philippine company. There being no transfer of beneficial ownership, no gain will be realized by both the transferor and transferee from the transfer of the shares. (BIR Ruling Nos. 475-05 dated November 21, 2005; DA-642-04 dated December 17, 2004; DA-500-03 dated December 11, 2003; DA-144-03 dated May 5, 2003; DA-130-03 dated April 25, 2003; BIR Ruling No. 347-87 dated November 6, 1987; BIR Ruling No. 161-83 dated September 14, 1983.) In BIR Ruling DA-088-06 dated 6 March 2006, which involves facts analogous to the instant case, this Office specifically held that ". . . the proposed transfer of the TPC shares from TTC to TTHBV, pursuant to a worldwide corporate reorganization of The Thompson Group of Companies, is not subject to capital gains tax as (1) there is no effective transfer of beneficial ownership of the TPC shares since both Transferor and Transferee belong to The Thompson Group of Companies, and (2) the proposed transfer is a mere realignment of stockholdings effectively consolidating beneficial and legal ownership of the TPC shares. Since there is no transfer of beneficial ownership, no gain will be realized by TTC and THBV for income tax purposes." HDCAaS As regards the issue on whether or not the above transfer of shares is subject to donor's tax, this Office further held that ". . . The proposed transfer of the TPC shares will be made primarily for business considerations, i.e. , in connection with a worldwide corporate reorganization and to consolidate beneficial and legal ownership into the Transferee. Thus, the proposed transfer to be made without consideration is not subject to donor's tax since there is no donative intent that can be attributed to the Transferor. xxx xxx xxx Furthermore, both the Transferor and Transferee are subsidiaries and part of The Thompson Group of Companies, and there is no transfer of beneficial ownership of the TPC shares. . . . (T)here can be no donative intent on the part of the transferor in a transfer of properties to the member-beneficiaries, considering that a person or entity cannot donate properties, the ownership of which belongs to themselves. (BIR Ruling No. DA-318-99 dated May 21, 1999.) " xxx xxx xxx IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that, considering the transfer of ICTMSI shares by ICTII to ICTGNBV, pursuant to the Capital Contribution Agreement between ICTII and ICTGNBV, will not result in the transfer of beneficial ownership of the ICTMSI shares outside the ICT Group of Companies to which ICTII, ICTGNBV and ICTMSI all belong, with ICTII acquiring indirect ownership of ICTMSI through ICTGNBV a direct, wholly-owned subsidiary of ICTII, the said transfer is in effect a legitimate corporate reorganization and without monetary consideration that is not subject to capital gains tax and donor's tax. However, the transfer of ICTMSI shares from ICTII to ICTGNBV shall be subject to documentary stamp tax imposed under Section 4 of Revenue Regulations No. 13-2004, implementing Section 176 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 the ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service