LGTM Corporation

September 24, 2008 BIR RULING [DA-(JV-032) 255-08] 22 (B); DA-586-2007 LGTM Corporation 8/F Antel Global Corporate Center Julia Vargas Ave., Ortigas Center Pasig City Attention: Mr. Teodoro N. Camacho IV President Gentlemen : This refers to your letter dated September 4, 2008 requesting for a ruling that the transfer of real properties from Everlasting Memorial Park, Inc. ("Landowner") to LGTM Corporation ("Developer"), with respect to the allocated share of the co-venturers pursuant to a Joint Venture Agreement is not subject to the creditable/expanded withholding, value-added and documentary stamp taxes. Based on the representations, as well as from the documents submitted, the facts are as follows: The Developer, LGTM Corporation, is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines with office address at 8/F Antel Global Corporate Center, Julia Vargas Avenue, Ortigas Center, Pasig City. The Landowner, Everlasting Memorial Park, Inc., is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines with office address at Laperal Building, Session Road, Baguio City. The Landowner is the absolute and registered owner of several parcels of land situated in Barangay Kias, Itogon, Benguet and Baguio City with an aggregate area of 254,752 square meters, more or less, covered by Transfer Certificates of Title (TCT) No. T-25500, T-35611, T-35612, T-23058, T-23516, T-29279, T-25770, T-24072, T-48713, T-23715, T-35610, T-8472 and T-23709 ("Properties"). On July 5, 2003, a Joint Venture Agreement ("JVA") was executed by and between Everlasting Memorial Park, Inc. (Landowner) and LGTM Corporation (Developer). cSTHAC Pursuant thereto, the parties agreed that the Landowner shall contribute the Properties to the joint venture project, and the Developer shall undertake to develop the subject Properties into a residential subdivision to be known as "St. Bernice Homes Subdivision", covering the development of parcels of land consisting of Two Hundred Fifty Four Thousand Seven Hundred Fifty Two (254,752) square meters. To cater to the new demands of the international market, FCPCP applied for an ITH for an entirely new project, that is, the manufacture of small form factor hard disk drives, components, parts and accessories, and on September 24, 2007, through PEZA Board Resolution No. 07-451, FCPCP was granted a four (4)-year ITH that starts from January 1, 2008 for the said new product line. However, in order to prevent business reverses, to cut down maintenance costs, and prevent temporary closure, FCPCP decided that it would be in the best interest of the company to sell its factory building in the First Philippine Industrial Park Special Economic Zone (FPIP-SEZ). It was decided that the said building will be sold to another PEZA-registered enterprise. It is represented that the sale of the said building will not impair the capacity of FCPCP to continue with its registered activity. In reply thereto, please be informed that in BIR Ruling No. 008-99 dated January 19, 1999, the Bureau ruled that the sale by a PEZA-registered enterprise of its building to another PEZA-registered company is covered by its 5% preferential tax incentive (BIR Ruling No. DA-013-07 dated January 11, 2007). Such being the case, and considering that FCPCP's building is being used in its PEZA-registered activity and the building will be sold to another PEZA-registered company, this Office hereby confirms your opinion that the sale of FCPCP's factory building is covered by its 5% preferential tax regime. Also, considering that the 5% preferential tax rate is a "commuted tax", the sale of said building by FCPCP is not subject to VAT (BIR Ruling No. 008-99 dated January 19, 1999; BIR Ruling No. 040-02 dated November 14, 2002). However, with respect to the documentary stamp tax on the sale of real properties imposed under Section 196 of the Tax Code of 1997, as amended, the same shall have to be paid. This is because the documentary stamp tax is an excise tax which is imposed upon the privilege to execute such documents and not on the income from FCPCP's business activity. While the documentary stamp tax is viewed as a tax on the document, it is in reality a form of excise tax. It is an excise tax upon the facilities used in the transaction of the business separate and apart from the business itself (BIR Ruling No. DA-699-99 dated December 21, 1999, citing Du Pont vs. U.S., 300 US 150) Accordingly, the sale by FCPCP of its building shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-246-2008 dated April 15, 2008) aICcHA This ruling is 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. (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service