Sycip Gorres Velayo & Co.

September 18, 2008 BIR RULING [DA-(C-069) 233-08] 27; 176; #347-87; DA-594-99; DA-632-2006; DA-336-2007; Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Emmanuel C. Alcantara Co-Head, Tax Services Gentlemen : This refers to your letter dated August 15, 2008 stating that your client, TI (Philippines) Inc. (TIPI), is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal place of business at PEZA, Loakan Road, Baguio City; that TIPI has an authorized capital stock of One Billion Nine Hundred Million Nine Hundred Ninety Six Thousand and Nine Hundred Pesos (P1,009,996,900.00) divided into Ten Million Ninety Nine Thousand Nine Hundred Sixty Nine (10,099,969) shares with a par value of One Hundred Pesos (P100.00) per share; that the registered owners of said shares are Texas Instruments (Philippines), LLC (TI-Delaware) and the five individual directors of TIPI holding one (1) qualifying share each, as follows: Name of Stockholders of Record No. of Shares Amount Subscribed (Php) Texas Instruments (Philippines) LLC 10,099,964 1,009,996,400.00 Norberto A. Viera 1 100.00 Edwin B. Delos Trinos 1 100.00 Gavin W. Reid 1 100.00 Mark E. Patrick 1 100.00 Janice W. Harissis 1 100.00 10,099,969 1,009,996,900.00 ========= ============ that you further state that: 1. TIPI-Delaware is a limited liability company organized and existing under the laws of the State of Delaware, U.S.A. It is controlled by its sole member Texas Instruments Incorporated (TI-US) owning 100% interest of the limited liability company. THIcCA 2. TI-US is a corporation organized and existing under the laws of the State of Delaware, U.S.A. It has a long-standing presence in many of the world's major markets with manufacturing sites, sales and support offices located in Europe, Asia, Japan, and the Americas. 3. Texas Instruments Holland B.V. (TI-Holland) is a corporation duly organized and existing under the laws of the Netherlands. TI-US owns 100% of the issued and outstanding shares of TI-Holland. that you also explain that as an integral part of a worldwide corporate reorganization of TI-US which includes the ongoing expansion of its assembly/test operations in the Philippines with a new site within the Clark Freeport Zone which is expected to eventually employ about 3,000 workers and will double the capacity that TI has in the Philippines, TIPI-Delaware shall declare as property dividend all the 10,099,964 TIPI shares owned by it and registered in its name (the "TIPI Shares") in favor of its sole member TI-US; that immediately thereafter, TI-US shall transfer the same in favor of TI-Holland solely in exchange for TI-Holland Shares; and that after acquiring the TI-Holland Shares, TI-US will continue to own 100% of the issued and outstanding shares of TI-Holland, thus retaining the beneficial ownership of the TIPI shares. In connection therewith, you now request for confirmation that the transfer of the TIPI Shares from TIPI-Delaware to its sole stockholder TI-US by way of property dividend and the subsequent transfer of the same shares from TI-US to TI-Holland solely in exchange for shares of stock of the latter is not subject to tax being integral parts of the worldwide corporate reorganization of TI-US and also because the beneficial ownership of the TIPI shares will remain with TI-US since the initial transferor (TIPI-Delaware) and the final transferee (TI-Holland) of the TIPI Shares are both wholly owned subsidiaries of TI-US. In reply thereto, please be informed that 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, we ruled that ". . . the transfer of all the outstanding shares of API consisting of 148,994 common shares of 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." HSaCcE In BIR Ruling DA-336-07 dated June 20, 2007 the same principle was applied citing the above BIR ruling which states: ". . . 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." Specifically, in BIR Ruling No. DA-594-99 dated October 7, 1999 we ruled as follows; c) Corporate Reorganization is not subject to Philippine tax "Since the transfer of MPI SHARES by MIDC to MINC by way of property dividend declaration and the transfer by MINC to SCG Holding and the subsequent transfer of the same shares from SCG Holding to SCI, LLC by way of capital contribution to the transferee entities are integral parts of the corporate reorganization among the subsidiaries and affiliates of MINC pursuant to the "Distribution and Contribution Agreement" dated April 30, 1999, by and among MINC, MIDC, SCG Holding and SCI, LLC, no sale or other disposition of the MPI SHARES take place hence, the transfer of the MPI SHARES are not subject to Philippine tax. (BIR Ruling No. 385-93 dated September 30, 1993)" "It is understood, however, that the transfer by MIDC to MINC of the MPI SHARES by way of a property dividend and all the subsequent transfer of the same shares will be subject to the documentary stamp tax (DST) under Section 176 of the Tax Code of 1997. Upon proof of payment of the DST, the Corporate Secretary of Motorola Philippines, Inc. may effect and record the series of transfers of the MPI SHARES." Based on the foregoing, since the transfer of the TIPI Shares by TIPI-Delaware to TI-US by way of property dividend declaration and the subsequent transfer of the same TIPI Shares by TI-US to TI-Holland solely in exchange for shares of stock will be in pursuance to a legitimate worldwide corporate reorganization and considering that TIPI-Delaware and TI-Holland are both subsidiaries of TI-US, the beneficial ownership of the TIPI shares will remain in TI-US. Hence, there is no effective transfer of beneficial ownership and no gain will be realized by TIPI-Delaware and TI-US for income tax purposes. (BIR Ruling No. DA-642-04 dated December 17, 2004 and BIR Ruling No. DA-632-06 dated October 26, 2006) IAETDc Moreover, the transfer of the TIPI Shares by TI-US to TI-Holland solely in exchange for the latter's shares of stock, whereby as a result of the transfer, TI-US will gain further control of TI-Holland is a tax-free transaction in accordance with Section 40 (c) (2) of the National Internal Revenue Code of 1997, as amended. Such being the case, the transfer is exempt from documentary stamp tax (DST) pursuant to Section 199 (m) of the Tax Code, as amended by R.A. No. 9243 and as implemented by RR No. 13-2004. However, the transfer of the TIPI shares by TIPI-Delaware to TI-US by way of property dividend will be subject to the documentary stamp tax (DST) under Section 176 of the Tax Code of 1997, as amended. Upon proof of payment of the DST, the Corporate Secretary of TIPI may effect and record the transfer of the TIPI shares to TI-US. 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