Romulo Mabanta Buenaventura

April 21, 2009 BIR RULING [DA-(C-057) 205-09] 347-87 Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower 8741 Paseo de Roxas Makati City Attention: Atty. Priscilla B. Valer Partner Gentlemen : This refers to your letter dated February 9, 2009 stating that your client, Moriroku Company Ltd. (MCL), is a corporation organized and existing under the laws of Japan with address at the 18th Floor, Shin-Aoyama East Building, 1-1-1, Minami-Aoyama, Minato-ku, Tokyo, Japan; that pursuant to a worldwide reorganization, all of MCL's business relating to chemicals will be succeeded to by Moriroku Chemicals Company Ltd. to be newly set up by a process of establishment and division; that similarly, all of its business relating to production will be succeeded to by Moriroku Technology Company Ltd. to be newly set up a process of new establishment and division; that Moriroku Chemicals Company Ltd. and Moriroku Technology Company Ltd. will each issue 100 shares of common stock at the time of the division, as of October 31, 2008, and allot all of them to MCL; that the terms of the corporate reorganization is embodied in the Notice of Resolutions passed during the regular stockholders' general meeting for the 93rd business term; that in the Philippines, MCL's production business consists of the following: a. Two Hundred Thousand (200,000) shares of stock of Moriroku Philippines, Inc. with par value of P1,000 per share or a total par value of P200,000,000.00, representing 100% of the outstanding capital stock of Moriroku Philippines, Inc.; and b. Four Thousand Eight Hundred (4,800) shares of stock of R&M Properties, Inc. with par value of P1,000 per share or a total par value of P4,800,000.00, representing 40% of the outstanding capital stock of R&M Properties, Inc. that Moriroku Philippines, Inc. and R&M Properties, Inc. are corporations organized and existing under the laws of the Philippines with office address at 115 North Science Avenue, Laguna Technopark, Bian, Laguna; and that to implement the worldwide reorganization in the Philippines, MCL and Moriroku Technology Company Ltd. will execute an Agreement on Equity Transfer whereby the shares will be transferred by MCL to Moriroku Technology Company Ltd. however, MCL will remain as the ultimate parent company. Based on the foregoing representations, you now request for confirmation of your opinion that the transfer of shares from MCL to Moriroku Technology Company Ltd. pursuant to a bona fide worldwide reorganization is not subject to capital gains tax and donor's tax. However, since the transfer will be recorded in the Philippines, the transfer of shares will be subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. In reply thereto, please be informed that this Office had already occasion to rule on the matter when it said in BIR Ruling No. 347-87 dated November 5, 1987, wherein the transaction involved the transfer of Philippine shares owned by a foreign corporation to its wholly-owned foreign subsidiary under the proposed corporate reorganization, as follows: " . . . the transfer of all the outstanding shares of API consisting of 148,994 common shares to AAB to APH, its wholly-owned subsidiary in accordance with its proposed corporate reorganization which will consolidate certain operations in the South East Asia Region to APH is not subject to any Philippine tax." HDATCc The above-cited ruling was reiterated in BIR Ruling No. DA336-07 dated June 20, 2007, where this Office ruled that " . . . since the transfer by DTS of its shares of stock in PBR to Cargill is in pursuance to a legitimate worldwide corporate reorganization, and there is no effective transfer of beneficial ownership, no gain was realized by both DTS and Cargill for income tax purposes." Prescinding from the above-cited rulings, it is undisputed that the transfer of the shares from MCL to Moriroku Technology Company Ltd. pursuant to a worldwide corporate reorganization of the Moriroku Companies is not subject to capital gains tax as there is no effective transfer of beneficial ownership of the said shares. Considering that the transfer of said shares was made merely to divide MCL into two (2) companies, namely: Moriroku Chemical Company Ltd. to handle the chemical business and Moriroku Technology to handle the production business, and MCL will continue to be the ultimate parent company, no gain will be realized by MCL and Moriroku Technology Company Ltd. for income tax purposes. CHATEa It is to be noted that Section 40 (C) (2) and (6) (c) of the Tax Code of 1997 on non-recognition of gains or loss applies likewise to worldwide reorganization where there is no transfer of beneficial ownership. SUCH BEING THE CASE, this Office hereby confirms your opinion that 1. The transfer of the shares by MCL to Moriroku Technology Company Ltd. pursuant to the worldwide corporate reorganization is not subject to capital gains tax imposed under Section 28 (B) (5) (c) of the Tax Code of 1997; 2. The transfer of the said shares primarily for business consideration is likewise not subject to donor's tax under Section 98, supra; 3. Finally, the transfer of the shares by MCL to Moriroku Technology Company Ltd. is subject to documentary stamp tax imposed under Section 176 of the Tax Code of 1997, as amended by Republic Act No. 9243, as implemented by Revenue Regulations No. 13-2004, upon the execution of the Agreement on Equity Transfer. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service