SyCip Gorres Velayo & Co.

September 9, 2009 BIR RULING [DA-(C-205) 525-09] Sec. 56, RR 2; BIR Ruling No. 270-87, 568-88, 127-89, DA-560-04 & DA-221-02 SyCip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. W.U. Villanueva Principal, Tax Services Gentlemen : This refers to your letter dated May 20, 2009 requesting on behalf of your client, Uni-President (Philippines) Corporation (formerly Uni-President Foods Corporation ["UPPC"], for confirmation of your opinion that the conversion of the deposits for future stock subscription made by its sole corporate stockholder, Uni-President Southeast Asia Holdings Ltd. ("UPSAHL"), into additional paid-in capital ("APIC") or paid-in-surplus of UPPC, without the issuance of additional shares of stock, is deemed a capital investment, not included within the purview of the term "taxable income" under the 1997 Tax Code, as amended, and therefore, not subject to income, donor's, and documentary stamp taxes. As represented, UPPC is a corporation organized and existing under the laws of the Philippines with principal office address at the Ground Floor, Topy's Place Building, Economia corner Industria Street, Bagumbayan (Libis), Quezon City. It is primarily engaged in the business of manufacturing, selling on wholesale basis only, distribution, trading, export and import, and otherwise dealing in instant noodles and related products. UPPC has an authorized capital stock of 6,000,000 common shares with a par value of P10.00, of which all the 60,000,000 shares have already been subscribed and paid-up. On the other hand, UPSAHL is a non-resident foreign corporation organized and existing under the laws of The Cayman Islands with principal office address at Scotia Ctr., 4F PO Box 2804, George Town, Grand Cayman, British West Indies. UPSAHL owns 99.99% of the shares of stock of UPPC. During the course of its operations, UPPC received deposits for the future stock subscription from UPSAHL to augment the working capital and cash requirements of the Company. As of 2008, the total deposits for future stock subscription amounted to P964,000,000.00. On November 3, 2008, the Board of Directors (BOD) of UPPC authorized and approved the conversion of the P964,000,000.00 deposits for future stock subscription into additional paid-in capital (APIC), without the issuance of shares of stock by UPPC. TDSICH The deposits for future stock subscription are UPSAHL's continuing financial support to guarantee that UPPC will remain a going concern and were, thus, intended to augment the working capital of UPPC's operations as the company has been incurring losses in prior periods. The deposits for future stock subscription were intended to reverse UPPC's negative working capital and negative cash flows to ascertain UPPC's viability for continued operations. The above deposits for future stock subscription were already properly reflected as additional paid-in capital in UPPC's 2008 Statement of Changes In Equity of its Audited Financial Statements. In reply, please be informed that capital contribution in the form of money or property without the issuance of additional shares generally does not give rise to a taxable event pursuant to Section 56 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, which provides that "Section 56. Contributions by shareholders. Where a corporation requires additional funds for conducting its business and obtains such needed money through voluntary process payments by its shareholders, the amounts so received being credited to its surplus account or to a special capital account, will not be considered income, although there is no increase in the outstanding shares of stock of the corporation. The payments in such circumstances are in the nature of voluntary assessments upon, and represent an additional price paid for, in shares of stock held by the individual shareholders, and will be treated as an addition to and as part of the operating capital of the company." Thus, in BIR Ruling No. DA-560-04 dated November 8, 2004 involving the conversion of the deposits for future capital subscriptions made by AB Electrolux Sweden into APIC or paid-in surplus of Electrolux, this Office, citing BIR Ruling Nos. 568-88 dated December 19, 1988, 270-87 dated September 8, 1987, and 127-89 dated June 13, 1989, ruled as follows: ". . . the conversion of the deposits for future capital subscriptions made by ABE into additional paid-in capital or paid-in surplus of Electrolux is not subject to income and donor's taxes because the infusion of APIC by ABE into Electrolux is in the nature of additional funds which will be used as, and forms part of, the latter's working capital for which no corresponding shares of stock will be issued. As such the APIC does not constitute an income on the part of Electrolux. (BIR Ruling No. DA-221-2002 dated November 25, 2002) DaIAcC Considering the fact that no new Electrolux shares shall be issued in exchange for the conversion, the same shall not be subject to documentary stamp tax imposed under Section 175 of the Tax Code of 1997. (BIR Ruling No. 015-2003 dated November 17, 2003 and CTA Case No. 5988 entitled "First Southern Philippines Enterprises, Inc. vs. Commissioner of Internal Revenue" which became final and executory on February 13, 2002)" Based on the foregoing, this Office confirms your opinion that 1. The conversion of UPSAHL's deposits for future stock subscription into APIC of UPPC, in the amount of P964,000,000.00, without the issuance of additional shares of stock, is deemed a capital investment, not included within the purview of the term "taxable income" under the Tax Code, thus, is not subject to income tax. 2. The conversion of UPSAHL's deposits for future stock subscription into APIC of UPPC, without the issuance of shares of stock and intended to augment the working capital and cash requirements of the Company, is not subject to donor's tax under Section 99 of the Tax Code; and 3. The conversion of UPSAHL's deposits for future stock subscription into APIC of UPPC, without the issuance of shares of stock, is not subject to documentary stamp tax (DST) under Section 174 of the Tax Code. 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. AIDSTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service