Quisumbing Torres

October 23, 2008 BIR RULING [DA-(C-105) 329-08] DA-088-06 dtd. 03/06/06 Quisumbing Torres 12th Floor, Net One Center 26th Street corner 3rd Avenue Crescent Park West, Bonifacio Global City Taguig, Metro Manila Attention: Atty. Dennis G. Dimagiba Atty. Jose Jaime V. Cruz Gentlemen : This refers to your letter dated January 29, 2008, requesting on behalf of your client, Integrated Device Technology, Inc. ("IDT US"), for confirmation that (i) the contribution of IDT US' shares in the capital stock of Integrated Device Technology (Philippines), Inc. ("IDT Philippines") to Integrated Device Technology Bermuda Ltd. ("IDT Bermuda"), and (ii) the subsequent contribution of the same shares in IDT Philippines by IDT Bermuda to IDT Singapore Pte. Ltd. ("IDT Singapore") , as part of the corporate reorganization involving the foregoing entities belonging to the IDT Group of Companies is not subject to capital gains tax and donor's tax. It is represented that IDT US is a corporation organized and existing under the laws of the State of Delaware, USA. IDT US is a publicly-held corporation with shares listed and traded on the NASDAQ, and registered to engage primarily in the business of providing a broad portfolio of essential semiconductor solutions, computing and consumer applications; that IDT US owns (either directly or indirectly) and has ultimate voting control over 30 subsidiaries organized in several jurisdictions and belonging to the IDT Group of Companies, including (i) Integrated Device Technology (Philippines), Inc. ("IDT Philippines"), a corporation organized and existing under the laws of the Republic of the Philippines, and registered to engage primarily in the business of processing, manufacturing, assembling, fabricating, packaging, testing, taping and reeling of high-performance integrated circuits and semiconductor products; (ii) Integrated Device Technology Bermuda Ltd. ("IDT Bermuda"), a corporation organized and existing under the laws of the Islands of Bermuda, and registered to engage in general business; and (iii) IDT Singapore Pte. Ltd. ("IDT Singapore") , a corporation organized and existing under the laws of Singapore, and registered to carry on the business as manufacturers, exporters, importers, wholesalers, and dealers of integrated circuit systems, computer software, computer equipment and machinery of all types and descriptions, and related products; that IDT US is the beneficial owner of effectively 100% of the capital stock of IDT Philippines consisting of 836,831 common shares ("IDT Philippines Shares") , including six (6) shares held by individual nominees in trust for and on behalf of IDT US; that IDT US also owns the issued and outstanding capital stock of IDT Bermuda consisting of 12,002 shares, 99% of which is directly held by IDT US; that IDT Bermuda, in turn, directly owns 100% of the issued share capital of IDT Singapore consisting of 1,000,000 shares; that on December 1, 2007, IDT US, IDT Bermuda and IDT Singapore entered into a tripartite Capital Contribution Agreement ("Agreement") with the primary objective of reorganizing the corporate structure of IDT Philippines, with such reorganization expected to result in corporate efficiencies; that in the Agreement, IDT US agreed to contribute its rights, title and interests in the IDT Philippines Shares to IDT Bermuda, as contribution to the capital surplus of the latter without the issuance of any shares in the exchange; that immediately after such transaction, IDT Bermuda, in turn, agreed to transfer its rights, title and interests in the same IDT Philippines Shares to IDT Singapore, in exchange for the issuance of one (1) share of the capital stock of IDT Singapore worth SGD13,398,248.21; that as a result of the foregoing back-to-back share contributions, IDT Singapore will become the new direct owner of the IDT Philippines Shares; that IDT Singapore will continue to be a 100% directly-owned subsidiary of IDT Bermuda, while IDT Bermuda, in turn, will continue to be a 100%-owned direct/indirect subsidiary of IDT US; that Beneficial ownership in the IDT Philippines Shares will remain in the IDT Group of Companies, particularly in IDT US through the direct or indirect ownership and control of IDT Bermuda and IDT Singapore. ATCaDE Hence, you now request confirmation of your opinion that: 1) the above-described contributions of the IDT Philippines Shares by IDT US and subsequently by IDT Bermuda are not subject to the capital gains tax imposed under the Tax Code of 1997 on the sale, exchange or other disposition of shares of stock in a Philippine corporation not traded through the local stock exchange; 2) that the foregoing contributions of the IDT Philippines Shares, albeit without consideration, are not subject to the donor's tax imposed under the same Code. In reply thereto, please be informed 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." cITaCS As regards the issue on whether or not the above transfer of shares is subject to donor's tax, we 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. SacDIE 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 Accordingly, the transfer of the IDT Philippines Shares by IDT US to IDT Bermuda, and subsequently by IDT Bermuda to IDT Singapore, pursuant to the Capital Contribution Agreement signed by the aforementioned companies, will not result in the transfer of beneficial ownership of the IDT Philippines Shares outside the IDT Group of Companies to which IDT US, IDT Bermuda, IDT Singapore and IDT Philippines all belong, with IDT US maintaining ownership and control of the IDT Philippines Shares directly through IDT Bermuda, and indirectly through IDT Singapore a direct subsidiary of IDT Bermuda, the said transfers are in effect pursuant to a legitimate corporate reorganization and without monetary consideration and are not therefore subject to capital gains tax and donor's tax. However, the transfer of the IDT Philippines shares from IDT US to IDT Bermuda, and from IDT Bermuda to IDT Singapore, shall each 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. TaDAIS Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service