Quisumbing Torres

September 19, 2008 BIR RULING [DA-(C-075) 243-08] BIR Ruling No. DA-088-06 Quisumbing Torres 12th Floor, Net One Center 26th St. cor. 3rd Avenue Crescent Park West, Bonifacio Global City Taguig City Attention: Atty. Dennis G. Dimagiba Atty. Jose Jaime V. Cruz Gentlemen : This refers to your letter dated May 5, 2008 requesting on behalf of your client, Illinoi Tool Works, Inc. ("ITW"), for confirmation of your opinion that the contribution by ITW of its shares of capital stock of ITW Ampang Industries Philippines Inc. ("Ampang") and of ITW Texwipe Philippines, Inc. ("Texwipe") to ITW Philippines Holdings LLC ("Phil. Holdings") as part of the corporate reorganization involving the foregoing entities belonging to the ITW Group of Companies, with beneficial ownership in the shares of stock in Ampang and Texwipe remaining within said group, is not subject to capital gains tax and donor's tax. Documents show that ITW is a corporation organized under the laws of the State of Delaware, with principal business address at 3600 West Lake Avenue, Glenview, Illinois, U.S.A. ITW is registered primarily "to manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description". ITW has ownership (direct and indirect) and ultimate voting control over several subsidiaries organized in other jurisdictions and belonging to the ITW Group of Companies. These entities include: ITW Ampang Industries Philippines, Inc. ("Ampang") formerly, Ampang Industries Philippines Co., Inc., a corporation organized and existing under the laws of the Republic of the Philippines with Securities and Exchange Commission (SEC) Registration (Reg.) No. 96169, and registered primarily "to engage in the manufacture, processing, sale and distribution of semiconductor and electronics related packaging materials, their parts, accessories and kindred articles of any kind or character connected therewith or a part thereof; to acquire by lease, purchase or otherwise and to use, maintain and operate plants, factories, warehouse and agencies for the manufacture, storage, sale and distribution of its products; and to conduct such other business as may be incidental or advantageous to the manufacture of said packaging materials or of any article made therefrom provided that the corporation shall not engage in the retail business"; SEcADa ITW Texwipe Philippines, Inc. ("Texwipe") formerly, Texwipe Philippines, Inc., a corporation organized and existing under the laws of the Republic of the Philippines with SEC Reg. No. A1997-23343 dated November 28, 2002, and registered primarily "to engage in, operate, conduct and maintain the business of manufacturing, importing, exporting, distributing, buying, selling or otherwise dealing in, at wholesale, contamination control cleaning products for use in critical environments such as: wipers, swabs, cleanroom stationary, and other goods of similar nature, and any and all equipment, materials, supplies used or employed in or related to the manufacture of such finished products"; ITW Philippines Holdings LLC ("Phil. Holdings"), a limited liability company organized and existing under the laws of the State of Delaware, U.S.A and registered "to engage in any lawful act or activity for which companies may be organized under the Limited Liability Company Act of the State of Delaware." ITW is currently the beneficial owner of 100% of the capital stock of Ampang consisting of 2,799,650 common shares ("Ampang Shares"), including five (5) shares held by individual nominees in trust for and on behalf of ITW. ITW is also the beneficial owners of 100% of the capital stock of Texwipe consisting of 68,000 common shares ("Texwipe Shares"), including five (5) shares held by individual nominees in trust for and on behalf of ITW. Prior to the restructuring exercise, ITW is also the direct owner of 100% of the common stock of Phil. Holdings. With an effective date of 27 December 2007, ITW and Phil. Holdings entered into a Contribution Agreement (Agreement) as part of efforts to reorganize the corporate structure of the ITW Group of Companies worldwide. Under the Agreement, ITW agreed to contribute its rights, title and interests in the Ampang Shares and Texwipe Shares to Phil. Holdings in exchange for the issuance of shares in the capital stock of the latter. Immediately after the transfer of the Ampang Shares and Texwipe Shares, ITW continued to be the owner of 100% of the issued and outstanding shares of the capital stock of the Phil. Holdings. Ownership of Phil. Holdings was then subsequently transferred to other companies that are situated abroad and are ultimately owned by ITW as part of its group of companies. Throughout these subsequent transfers, Phil. Holdings continued to own the Ampang Shares and Texwipe Shares directly. ATaDHC To implement the foregoing contribution locally, ITW and Phil. Holdings also executed separate Deeds of Assignment for the Ampang Shares and Texwipe Shares with effective date 27 December 2007. HAICET Thus, as a result of the foregoing share contributions, Phil. Holdings will become the new direct owner of the Ampang Shares and Texwipe Shares. Beneficial ownership in the Ampang Shares and Texwipe Shares will remain in the ITW Group of Companies through Phil. Holdings and its ultimate parent, ITW. In support of your request, you attached photocopies of the following documents: 1) Diagram/structure chart showing the relationships of the various companies belonging to the ITW Group of Companies before and after the contributions of the Ampang Shares and Texwipe Shares; 2) Exhibit 21 of ITW's Form 10-K filed with the U.S. SEC on 28 February 2008 (after the above restructuring exercise), which enumerates the subsidiaries and affiliates of ITW worldwide with the various companies appearing in the final structure diagram (including Phil. Holdings) being listed as either direct or indirect subsidiaries of ITW and 100% owned by the latter; 3) Texwipe SEC Registration and Amended Articles of Incorporation; 4) Ampang SEC Registration and Amended Articles of Incorporation; 5) Certificates of Ampang Shares of stock; 6) ITW Certificate of Incorporation; 7) Contribution Agreement between ITW and Phil. Holdings; and 8) Other pertinent documents. In reply, please be informed as follows: 1. The transfer of shares in Texwipe and Ampang from ITW to Phil. Holdings pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to capital gains tax. In numerous rulings issued by this Office, we ruled that the transfer of shares of stock in a Philippine company by a nonresident foreign corporation to another nonresident foreign corporation belonging to the same group of companies, 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 the transferee from the transfer of the shares (BIR Ruling Nos. DA-209-05 dated April 27, 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; 347-87 dated November 5, 1987; BIR Ruling No. 161-83 dated September 14, 1983). HcTDSA Based on the foregoing, the transfer of the Texwipe Shares and Ampang Shares from ITW to Phil. Holdings, pursuant to a worldwide corporate reorganization of the ITW Group of Companies, is not subject to capital gains tax as (1) there is no effective transfer of beneficial ownership of the Texwipe Shares and Ampang Shares since both Transferor and Transferee belong to the ITW Group of Companies and (2) the transfer is a mere re-alignment of stockholdings effectively consolidating beneficial and legal ownership of the Texwipe Shares and Ampang Shares. Since there is no transfer of beneficial ownership, no gain will be realized by ITW and Phil. Holdings for income tax purposes. 2. The transfer of shares in Texwipe and Ampang from ITW to Phil. Holdings pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to donor's tax. This Office has consistently ruled that the transfer of property, without consideration, and primarily made for business considerations is not subject to donor's tax under Section 98 of the National Internal Revenue Code (NIRC), as amended because under such circumstances, no donative intent can be attributed to the transferor (BIR Ruling Nos. DA-174-98 dated April 30, 1998; DA-028-05 dated January 24, 2005; and DA-136-05 dated April 7, 2005). The transfer of the Texwipe Shares and Ampang Shares without consideration is not subject to donor's tax in the absence of donative intent. It has been consistently held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated (BIR Ruling No. DA-567-04 dated November 9, 2004; DA-338-03 dated October 7, 2003; DA-588-99 dated October 07, 1999; DA-403-99 dated July 13, 1999; DA-550-98 dated December 04, 1998; Perez vs. Commissioner of Internal Revenue, CTA Case No. 1707, February 10, 1969). The transfer of the Texwipe Shares and Ampang Shares was 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 transfer made without consideration is not subject to donor's tax since there is no donative intent that can be attributed to the Transferor. Furthermore, both the Transferor and the Transferee are subsidiaries and part of the ITW Group of Companies and there is no transfer of beneficial ownership of the Texwipe Shares and Ampang Shares. The BIR has also ruled that there 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). IHcSCA Thus, the transfer of the Texwipe Shares and Ampang Shares by ITW to Phil. Holdings, without consideration and in connection with a global corporate restructuring, is not subject to donor's tax. 3. The transfer by ITW of its Texwipe Shares and Ampang Shares to Phil. Holdings is subject to Documentary Stamp Tax. The transfer by ITW of its Texwipe Shares and Ampang Shares to Phil. Holdings is subject to DST. Under Section 4 of Revenue Regulations No. 13-2004, implementing Section 176 of the NIRC, as amended, all transfer of shares of stocks of a domestic corporation are subject to the DST upon execution of the deed transferring ownership or rights thereto, or upon delivery, assignment or indorsement of such shares in favor of another. No transfer of shares of stock shall be recorded unless the DST thereon has been duly paid for in accordance with Section 201 of the same Code (BIR Ruling No. DA-209-2005 dated April 27, 2005 and BIR Ruling No. 475-05 dated November 21, 2005). SEIDAC 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service