Crown Asia Properties, Inc.

August 21, 2008 BIR RULING [DA-(S40M-007) 161-08] 40 (C) (2) (a) & (6) (b); S-40-007-2005 Crown Asia Properties, Inc. G/F Las Pias Business Center Alabang-Zapote Road Talon, Las Pias City Attention: Atty. Cecilia A. Ramilo Tax Department Head Gentlemen : This refers to your letter dated August 15, 2008 requesting for confirmation of your opinion that pursuant to Section 40 (C) (2) and (C) (6) (b) of the Tax Code of 1997, as amended, no gain or loss shall be recognized on the merger of Crown Asia Properties, Inc. ("CAPI"), Crown Asia Properties (North), Inc. ("CAPNI") and Symmetrical Ventures, Inc. ("SVI"), where CAPI shall be the surviving corporation. Background CAPI is a corporation organized and existing under the laws of the Republic of the Philippines whose primary purpose is to carry on the business of a registered real estate dealer and all alike undertakings pertinent to said business; to engage in subdivision business; to improve, manage, develop, sell, assign, transfer, lease mortgage, pledge or otherwise dispose of, or turn to account or deal with, all or any part of the property of the company, and from time to time to vary an investment or employment of the capital; and to some extent as juridical persons might or could do, to purchase or otherwise dispose of and deal in lands, leaseholds and, any interests, estate, and rights in real property, and any franchises, rights, licenses or privileges necessary, convenient or appropriate for any of the purposes herein expressed. It has an authorized capital stock of Four Hundred Million Pesos (P400,000,000.00) divided into 4,000,000 Common shares with par value of P100 per share, and Two Million Five Hundred Thousand (2,500,000) Common shares are outstanding. As of March 31, 2008, CAPI's audited balance sheet shows a total assets of P4,505,337,692, total liabilities of P3,122,685,502 and stockholder's equity of P1,382,652,190. CAPNI is a corporation organized and existing under the laws of the Republic of the Philippines whose primary purpose is to carry on the business of a registered real estate dealer and all alike undertakings pertinent to said business; to engage in subdivision business; to improve, manage, develop, sell, assign, transfer, lease mortgage, pledge or otherwise dispose of, or turn to account or deal with, all or any part of the property of the company, and from time to time to vary an investment or employment of the capital; and to some extent as juridical persons might or could do, to purchase or otherwise dispose of and deal in lands, leaseholds and, any interests, estate, and rights in real property, and any franchises, rights, licenses or privileges necessary, convenient or appropriate for any of the purposes herein expresses. It has an authorized, subscribed and paid-up capital stock of Six Hundred Million Pesos (P6,000,000,000.00) * divided into Six Million (6,000,000) shares of common stock with a par value of One Hundred Pesos (P100.00) per share. As of March 31, 2008, CAPNI's audited balance sheet shows total assets of P2,202,579,531, total liabilities of P1,254,104,752 and stockholders equity of P948,474,779. DIAcTE SVI is a corporation organized and existing under the laws of the Republic of the Philippines whose primary purpose is to acquire by purchase, negotiation or otherwise and to hold for investment or mortgage, pledge or otherwise deal with or dispose of stocks, bonds or any other obligations or securities of any entity or entities; to aid in any manner any entity whose stocks, bonds or other obligations are held in any manner guaranteed by the corporation or in which the corporation is in any way interested; to do any other acts or things for the reservation, protection, improvement, or enhancement of the value of any stocks, bonds, or other obligations, to exercise all the rights, powers and privileges of ownership, of every kind and description including the right to vote thereon, with the power to designate some entity or entities for that purpose from time to time to the extent as natural persons might or could. Provided it shall not engage as stock broker or dealer in securities. It has an authorized capital stock of Forty Million Pesos (P40,000,000.00) divided into Four Hundred Thousand (400,000) shares of common stock with a par value of One Peso (P1.00) per share of which Twelve Million One Hundred Thirty Thousand (12,130,000) shares are outstanding. As of March 31, 2008, SVI's audited balance sheet shows total assets of P268,555,002, total liabilities of P207,274,053 and stockholders equity of P61,280,949. On March 1, 2008 and March 5, 2008, the Board of Directors of CAPI, CAPNI and SVI, in separate meetings, approved the Plan of Merger to effect the merger of the three corporations. The stockholders of the constituent corporations approved such merger, having deemed it desirable and in the best interest of the constituent corporations and their stockholders that CAPNI and SVI be merged into CAPI particularly for the purpose of promoting efficiency and economy in overall business operations. As of the effective date of merger, CAPI, the surviving corporation, possessed and succeeded to all the assets, rights, interests, titles, equities, privileges, immunities, patents, copyrights, goodwill, trade names, trademarks, grants, licenses, permits, franchises and other interests, whether real, existing, inchoate or otherwise, of or belonging to CAPNI and SVI, the absorbed corporations, in addition to already acquired, granted, conferred, pertaining or belonging to and enjoyed or possessed by CAPI and all properties of CAPNI and SVI whether real, personal or mixed or otherwise, as well as all receivables in favor of CAPNI and SVI as of March 31, 2008 of whatever account and each and every other interest of or belonging, pertaining or due to CAPNI and SVI was all acquired by, transferred and conveyed to and vested in CAPI as of the effective date of merger without the need of any further act or deed. All the liabilities, undertakings, obligations of CAPNI and SVI, contractual or otherwise, express or implied, actual or contingent, shall be deemed transferred to and become the liabilities, undertakings and obligations of CAPI in the same manner as if CAPI had itself incurred such liabilities, undertakings and obligations, subject however, to CAPI's being able to exercise all of the defenses, rights, privileges, set-offs and counterclaims of every kind and nature which CAPNI and SVI have or might have. Furthermore, any claim, action or suit or proceeding by or against CAPNI and SVI whether existing or pending future or contingent, may be prosecuted or defended by CAPI as the case may be. ISADET The net assets of CAPNI and SVI shall form part of the net worth valuation of CAPI. Under the merger, CAPI is the surviving corporation whereas CAPNI and SVI ceased to exist and its legal personality was deemed terminated. The identity, existence, purposes, license, privileges, powers, rights and immunities of CAPI continue to be unaffected and unimpaired by the merger. The Securities and Exchange Commission approved the merger of CAPI, CAPNI and SVI on August 13, 2008. In connection with the foregoing, you now request for confirmation of your opinion as follows: 1. The above-described merger is exempt from income tax under Section 40 (C) (2) of the National Internal Revenue Code (NIRC), as amended. 2. The above-described merger is not subject to output tax pursuant to Section 4.106-8 (b) (3) of Revenue Regulations No. 16-2005, as amended. 3. No documentary stamp tax (DST) shall be due on the merger pursuant to Section 199 of the NIRC, as amended by Republic Act No. 9243. In reply thereto, please be informed as follows: 1. The foregoing merger among CAPI, CAPNI and SVI is a merger within the contemplation of Section 40 (C) (2) (a) in relation to Section 40 (C) (6) (b) of the Tax Code of 1997, as amended, because CAPI shall acquire/assume all the assets and liabilities of CAPNI and SVI and the merger shall be undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation; 2. The transfer by CAPNI and SVI of all their respective assets and liabilities to CAPI shall not give rise to the recognition of gain or loss pursuant to Section 40 (C) (2) of the said Code. Accordingly, no gain or loss shall be recognized by CAPNI and SVI as the transferors, and CAPI as the transferee, on the aforesaid transfer by CAPNI and SVI of all their assets and liabilities to CAPI pursuant to the Plan of Merger. [BIR Ruling No. DA-075-03, BIR Ruling No. DA-037-02, BIR Ruling No. DA 039-02, BIR Ruling No. DA 184-02] ; 3. The basis of the assets received by CAPI shall be the same as it would be in the hands of CAPNI and SVI. The original or adjusted bases of the assets, consisting of real properties, transferred by CAPNI and SVI to CAPI pursuant to the merger are listed in Annex "A" hereof. HICSaD 4. For value-added tax ("VAT") purposes, the transfer of the assets of CAPNI and SVI to CAPI pursuant to the merger will not be subject to any output tax, pursuant to Section 4.106-8 (b) (3) of Revenue Regulations (RR) No. 16-2005, otherwise known as the Consolidated Value-Added Tax Regulations, as amended by RR No. 4-2007. [BIR Ruling No. DA-075-03, BIR Ruling No. DA 184-02] Furthermore, any unused input tax of CAPNI and SVI as of the Effective Date of Merger will be absorbed by CAPI as the surviving corporation pursuant to Section 4.100-5 (b) (3) of RR No. 7-95, as last amended by RR No. 4-2007. 5. No documentary stamp tax ("DST") is due on the transfers of properties made pursuant to the Plan of Merger under Section 199 (m) of the Tax Code, as amended by Republic Act No. 9243, in relation to Section 40 (C) (2) of the Tax Code of 1997, as amended: (a) transfer of property, including real properties by CAPNI and SVI in favor of CAPI; and (b) surrender by CAPNI and SVI stockholders of their respective shares for cancellation and retirement. It is understood, however, that upon the subsequent sale or exchange of the assets or shares of stock acquired by the parties, the gain derived from such sale or exchange shall be subject to income tax. Moreover, in order that the above-described reorganization can be considered as merger under Section 40 (C) (2) of the Tax Code of 1997, the parties to the merger should comply with the following requirements: A. The plan of reorganization should be adopted by each of the corporations, parties thereto, the adoption being shown by the acts of its duly constituted responsible officers and appearing upon the official records of the corporation. Each corporation, which is a party to the reorganization, shall file, as part of its return for the taxable year within which the reorganization occurred, a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization, including: (1) A copy of the plan of reorganization, together with a statement, executed under the penalties of perjury, showing in full the purposes thereof and in detail all transactions incident to, or pursuant to the plan; (2) A complete statement of the cost or other basis of all properties, including all stocks or securities, transferred incident to the plan; DTSIEc (3) A statement of the amount of stock or securities and other property or money received from the exchange including a statement of all distribution or other disposition made thereof. The amount of each kind of stock or securities and other property received shall be stated on the basis of the fair market value thereof at the date of the exchange; and (4) A statement of the amount and nature of any liabilities assumed upon the exchange, and the amount and nature of any liabilities to which any of the property acquired in the exchange is subject. B. Every taxpayer, other than a corporation, who is a party to the reorganization, who received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in his income tax return for the taxable year in which the exchange takes place a complete statement of all facts pertinent to the non-recognition of gain or loss upon such exchange including: ECTIHa (1) A statement of the cost or other basis of the stock or securities transferred in the exchange; and (2) A statement in full of the amount of the stock or securities and other property or money received from the exchange, including any liability assumed upon the exchange, and any liability to which property received is subject. The amount of each kind of stock or securities and other property (other liabilities assumed upon the exchange) received shall be set forth upon the basis of the fair market value thereof at the date of exchange. C. Permanent records in substantial form shall be kept by every taxpayer who participates in a tax-free exchange in connection with a corporate reorganization showing the cost or other basis of the transferred property or money received (including any liability assumed on the exchange, or any liability to which any of the properties received were subject), in order to facilitate the determination of gain or loss from a subsequent disposition of such stock or securities and other property received from the exchange. (par. 9803-8, Prentice Hall 1963, ed., p. 9611) In addition to the foregoing requirements, the parties shall enclose with their respective income tax returns for the taxable year in which the merger occurred a copy of the request for ruling filed with, and the corresponding ruling issued by, the Bureau of Internal Revenue, both duly stamp-received by the appropriate office of the Bureau of Internal Revenue. Such parties shall include as a note to their respective audited financial statements for the taxable year in which the merger occurred a statement to the effect that they hold such assets/shares acquired in a merger and the year in which such merger occurred, and in the taxable years until the subject properties are subsequently transferred to another transferee. Finally, the parties are required to submit proof of annotation of the substituted basis of the Transfer Certificates of Title of the real properties involved in the transfer within ninety (90) days from receipt of this ruling. Violation of this requirement is subject to the penalties provided in Section 275 of the Tax Code of 1997. ICHcaD 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