Santiago Land Development Corporation

August 18, 2009 BIR RULING [DA-(C-181) 467-09] Sec. 29 (A) & (B); 035-02; 025-2002; DA-066-03; DA-333-03; DA-372-03; DA-299-03; DA-323-06; DA-682-03 Santiago Land Development Corporation BPI Building, Ayala Avenue Corner Paseo de Roxas, Makati City Attention: Ms. Yvonne Lih Director Gentlemen : This refers to your letter dated November 22, 2008 requesting confirmation of your opinion that Santiago Land Development Corporation ("SLDC") is a publicly-held corporation as defined under Revenue Regulations No. 2-2001 and, therefore, exempt from the Improperly Accumulated Earnings Tax (IAET) imposed under Section 29 of the Tax Code of 1997, as amended. SHaIDE It is represented SLDC is a corporation duly organized and existing under Philippine laws with office address at the BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City; that it is primarily engaged in the real estate development and sale thereof; that is a wholly owned subsidiary of Bank of the Philippine Islands (BPI) as shown in the latest General Information Sheet filed by SLDC with the Securities and Exchange Commission (SEC); that BPI is a banking corporation organized and existing under the laws of the Philippines, with principal office at BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City; and that it is a publicly-traded company listed in the Philippine Stock Exchange (PSE). In reply, please be informed that Section 29 (A) and (B) of the Tax Code of 1997, as amended, and as implemented by Revenue Regulations No. 2-2001, provides that in addition to other taxes imposed by Title II of the Tax Code, there shall be imposed for each taxable year a tax equal to 10% of the improperly accumulated taxable income of corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders. Thus, this kind of tax is being imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings, and as a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them by the corporation. However, the IAET shall not apply to, among others, publicly-held corporations. Section 29 of the Tax Code of 1997 provides, viz. : AEIDTc "Sec. 29. Imposition of Improperly Accumulated Earnings Tax. (A) . . . (B) Corporations Subject to Improperly Accumulated Earnings Tax. (1) In General. The improperly accumulated earnings tax imposed in the preceding section shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. IcHEaA (2) Exceptions The improperly accumulated earnings tax as provided for under this Section shall not apply to: (a) Publicly-held corporation [ sic ]; (b) Banks and other non-bank financial intermediaries; and (c) Insurance companies. . . . ." Under Section 4 of Revenue Regulations No. 2-2001, closely-held corporations are those corporations at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations. For purposes of determining whether the corporation is a closely-held corporation, it is provided that stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. In BIR Ruling No. 025-2002 dated June 25, 2002, this Office held that since Abbott-Phils. is a wholly-owned subsidiary of Abbott-US, such shares will be considered as being owned proportionately by the Abbott-US shareholders. This is because the ownership of a domestic corporation for purposes of determining whether it is a closely-held corporation or a publicly held corporation is ultimately traced to the individual shareholders of the parent company. Thus, where at least 50% of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at least 20 or more individuals, the corporation is considered a publicly-held corporation as the term is defined under Revenue Regulations No. 2-2001. Consequently, this Office ruled that Abbott-Phils. is a publicly-held corporation exempt from the IAET, based on its representation that as of the year-end 2000, Abbott-US had 101,272 shareholders holding a combined 1,545,934,133 shares of common stock and the twenty largest shareholders of Abbott-US as of September 30, 2001 own an aggregate of 30.1 percent of Abbott-US' issued and outstanding shares. Applying the foregoing to the instant case, it is the opinion of this Office that since BPI, the parent company, is a publicly-listed and traded corporation and hence, a publicly-held corporation, it necessarily follows that its wholly-owned subsidiary, SLDC, is likewise considered a publicly held-corporation and, therefore, exempt from the imposition of IAET. (BIR Ruling Nos. 035-02 dated August 29, 2002, DA-066-03 dated March 4, 2003, DA-333-03 dated October 3, 2003, DA-299-03 dated September 11, 2003, DA-372-03 dated October 15, 2003, DA-323-06 dated May 17, 2006 & DA-682-06 dated November 29, 2006) STcaDI 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