Baniqued & Baniqued

April 27, 2009 BIR RULING [DA-(C-062) 214-09] 347-87 Baniqued & Baniqued 8/F Jollibee Centre San Miguel Avenue Pasig City Attention: Attys. Laura Victoria A.S. Yuson-Layug Madeline L. Zialcita-Villapando and Bernadette V. Quiroz Gentlemen : This refers to your letter dated March 23, 2009 stating that DB&B Philippines, Inc. (DB&B Phils.) is a corporation organized and existing under the laws of the Philippines with principal office located at Unit 2304 PBCOM Tower, 6795 Ayala Avenue corner Herrera Street, Makati City; that it is engaged in the business of rendering technical consultancy services; that it has an authorized capital stock of Fifty Million Pesos (P50,000,000) divided into Five Hundred Thousand (500,000) shares with a par value of One Hundred Pesos (P100.00) per share, of which Twelve Million Five Hundred Thousand Pesos (P12,500,000) is issued and outstanding; that DB&B Holdings Pte. Ltd. (DB&B Holdings) is a corporation duly organized and existing under the laws of Singapore with principal office located at 3791 Jalan Bukit Merah #07-15/18 E-Centre@Redhill, Singapore 159471; that it is the legal owner of 74,997 shares and is the beneficial owner of 1 share of DB&B Phils., thus owning sixty percent (60%) thereof; that on the other hand, DB&B Pte. Ltd. (DB&B Pte.) is a corporation organized and existing under the laws of Singapore with principal office located at 3791 Jalan Bukit Merah #07-15/18 E-Centre@Redhill, Singapore 158471; that it is a subsidiary of DB&B Holdings; that as part of the legitimate corporate reorganization of the DB&B Group of Companies, DB&B Holdings assigned its 60% ownership in DB&B Phils., consisting of 74,998 shares, to DB&B Pte. for cash equivalent to the par value of the DB&B Phils. shares of One Hundred Pesos (P100) per share, or the aggregate amount of Seven Million Four Hundred Ninety-Nine Thousand Eight Hundred Pesos (P7,499,800); that the assignment of shares in DB&B Phils. from DB&B Holdings to DB&B Pte. is undertaken pursuant to the reorganization of the DB&B Group of Companies and is meant to rationalize and consolidate control of various DB&B international shareholdings in DB&B Pte.; and that as a result of the foregoing transaction, DB&B Phils. will now be 60% owned by DB&B Pte., resulting in a mere re-alignment of stockholdings, without an effective transfer of beneficial ownership of the shares of DB&B Phils. Based on the foregoing representations, you now request confirmation of your opinion that the assignment of the shares of stock in DB&B Phils., a domestic corporation, by DB&B. Holdings, a non-resident foreign corporation, to DB&B Pte., another non-resident foreign corporation, pursuant to a legitimate worldwide corporate reorganization, is exempt from capital gains tax and donor's tax considering that both transferor and transferee belong to the same group of companies and there is effectively no change in beneficial ownership of the shares. But the assignment of said shares shall be subject to the documentary stamp tax (DST) under Section 175 of the Tax Code of 1997, as amended. 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." The above-cited ruling was reiterated in BIR Ruling No. DA 336-07 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 in DB&B Phils. by DB&B Holdings to DB&B Pte. pursuant to a worldwide corporate reorganization of the DB&B Group of Companies is not subject to capital gains tax as there is no effective transfer of beneficial ownership of the said shares. Likewise, inasmuch as the transfer is made primarily for business considerations and there is no donative intent on the part of the transferor in the transfer of the above-mentioned shares to the member beneficiary, the said transfer is not subject to donor's tax. SUCH BEING THE CASE, this Office hereby confirms your opinion that 1. The transfer of the shares in DB&B Phils. by DB&B Holdings to DB&B Pte. 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 DB&B Holdings to DB&B Pte. 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. 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