SGV & Co

November 4, 2009 BIR RULING [DA-(C-252) 646-09] DA209-08; DA114-08; DA088-06; DA406-07 SGV & Co 6760 Ayala Avenue Makati City Attention: Atty. Jules E. Riego Principal Gentlemen : This refers to your letter dated October 8, 2009 stating that Teletech Holdings, Inc. (THI) is a corporation organized and existing under the laws of the United States of America with office address at 9197 South Peoria Street Office 2-264.2(0) Engelwood, Colorado 80112 USA; that THI owns 100% of the shares of TeleTech Offshore Investments, B.V. (TOBV), a non-resident foreign corporation organized and existing under the laws of Netherlands; that THI likewise owns 100% of the shares of TeleTech Customer Care Management Philippines, Inc. (TTCCMPI), a corporation registered with the Securities and Exchange Commission (SEC) and the Philippine Economic Zone Authority (PEZA); that specifically, THI owns 101,992 TTCCMPI shares and 8 nominal shares under the name of the following persons: CaDATc Stockholder Certificate No. No. of Shares James Barlett 003 1 J. Gregson A. Castillo 005 1 Alvin O. Geli 006 1 Nini Priscilla D. Sison 008 1 Ida Maureen C. Chao-Kho 009 1 Sharon O' Leary 011 1 Craig Reines 012 1 Dennis Lacey 013 1 that pursuant to restructuring plan of the international holdings of THI, a Contribution Agreement was entered into by THI and TOBV on December 13, 2004 whereby THI transferred its shares in TTCCMPI in the form of additional capital contribution to TOBV; and that no new shares will be issued to THI as the said additional capital contribution will be recorded in the books of TOBV as additional paid-in capital (APIC). Based on the foregoing representations, you now request confirmation of your opinion that 1. THI's transfer of its shares in TTCCMPI to TOBV pursuant to a worldwide corporate reorganization of the TeleTech Group of Companies is not subject to capital gains tax; 2. THI's transfer of its TTCCMPI shares to TOBV, without the issuance of additional shares of stock, is deemed a capital investment, which is not included within the purview of the term "taxable income" under the National Internal Revenue Code of 1997, as amended. Accordingly, it is not subject to Philippine income tax; 3. THI's transfer of its TTCCMPI shares to TOBV in the form of additional paid-in capital in TOBV, without the issuance of additional shares of stock, is deemed a capital investment; hence, not subject to capital gains tax; 4. THI's transfer of its TTCCMPI shares to TOBV pursuant to a legitimate worldwide reorganization and by way of additional capital contribution is not subject to donor's tax under Section 99 of the Tax Code, as amended; and 5. The transfer of TTCCMPI shares from THI to TOBV is subject to documentary stamp tax under Section 175 of the Tax Code, as amended. AcSEHT In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. 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, pursuant to a legitimate worldwide reorganization, is exempt from capital gains tax since there is no effective transfer of beneficial ownership of the shares in the Philippines. Consequently, no gain will be realized by both the transferor and the transferee from the transfer of the said shares. (BIR Ruling Nos. DA209-08; DA114-08; DA406-07) In applying the above-cited rulings, it is undisputed that the transfer of the TTCCMPI shares from THI to TOBV pursuant to a legitimate worldwide reorganization is not subject to capital gains tax since there is no effective transfer of beneficial ownership over the TTCCMPI shares from THI, the parent company, to TOBV, its wholly-owned subsidiary. 2. Section 56 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, provides "Contributions by shareholders. Where a corporation requires additional funds for conducting its business and obtains said funds through voluntary 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." Prescinding from the above-cited provisions, the additional funds received by a corporation from shareholders in the form of APIC are not considered taxable income as defined in the Tax Code. The additional capital contribution without necessarily issuing additional shares of stock merely increases the basis of the stockholder's shares but not their proportionate equity in the corporation. Accordingly, it is a transaction not subject to income or gift taxes. (BIR Rulings No. DA244-07; DA432-05; DA560-04) As such, the transfer by THI of its TTCCMPI shares to TOBV by way of additional capital contribution in the form of APIC and without the issuance of additional shares of stock, is deemed a capital investment, which is not subject to Philippine income tax. 3. Being in the nature of capital investment rather than taxable income, the transfer of TTCCMPI shares from THI to TOBV by way of additional capital contribution in the form of APIC and without the issuance of additional shares of stock is not subject to capital gains tax. 4. Considering that THI's proportionate equity in TOBV will not be increased and considering further that the share transfer was effected by THI purely for business reasons and without any intention to donate, the transfer by THI of its TTCCMPI shares to TOBV as APIC in the books of TOBV is not subject to donor's tax. (BIR Ruling Nos. DA224-07; DA432-05; DA046-04) 5. Finally, the transfer of TTCCMPI shares from THI to TOBV is subject to documentary stamp tax under Section 175 of the Tax Code, as amended. aEHASI 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service