Platon Martinez Flores San Pedro Leaño

December 19, 2008 BIR RULING [DA-(S40M-023) 560-08] Platon Martinez Flores San Pedro Leao 6th Floor, Tuscan Building 114 V.A. Rufino Street Legaspi Village Makati City Attention: Atty. Hector A. Martinez and Atty. Anthony Brett M. Abenir Gentlemen : This refers to your letter dated October 16, 2008 stating that your client, On-Semiconductor Philippines, Inc. (On-Semi Phil.), is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) to engage in, conduct, carry on and operate the business of manufacturing, producing, assembling, processing, servicing, importing, exporting, buying, selling, distributing and marketing of electronic products and the parts, components and accessories therefore, including specifically semiconductor devices of every type and description; that it has an authorized capital stock of P30,000,000.00 divided into 3,000,000 shares with a par value of P10.00 per share, of which 2,250,000 are issued and outstanding; that on the other hand, AMI Semiconductor Philippines, Inc. (AMI Phil.) is a domestic corporation duly registered with the SEC to engage in the manufacture, assembly, sale, transfer or disposition, and generally deal in and with any type of electronic and electrical products including components, accessories of materials therefore; that it has an authorized capital stock of P50,000,000.00 divided into 500,000 shares with a par value of P100.00 per share, all of which shares are issued and outstanding; that On-Semi Phil. and AMI Phil. are both wholly-owned subsidiaries of AMI Semiconductor, Inc. (AMI US), a corporation organized and existing under the laws of the State of Delaware, USA; that AMI US is the registered and beneficial owner of all the issued and outstanding shares of both On-Semi Phil. and AMI US; that deeming it desirable and in the best interest of both On-Semi Phil. and AMI Phil., their respective Board of Directors decided that AMI Phil. be merged into On-Semi Phil., with On-Semi Phil. as the surviving corporation, in accordance with the provisions of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines; that the articles of merger was authorized, approved, ratified and confirmed by a majority of the Board of Directors of On-Semi Phil. at its special meeting duly held on September 12, 2008 and by a majority of the Board of Directors of AMI Phil. At its special meeting duly held on September 12, 2008; that said articles of merger was authorized, approved, ratified and confirmed by the affirmative vote of the stockholders of On-Semi Phil. representing at least 2/3 of the outstanding capital stock of On-Semi Phil. at a special stockholders' meeting duly held on September 12, 2008 and by the affirmative vote of the stockholders of AMI Phil. Representing at least 2/3 of the outstanding capital stock of AMI Phil., at a special stockholders' meeting duly held on September 12, 2008; that the articles of merger was formally submitted to the SEC on September 24, 2008, for approval; and that the salient terms and conditions of the merger are as follows: 1. On-Semi Phil. and AMI Phil. shall become a single corporation, with On-Semi Phil. as the surviving corporation and AMI Phil. shall cease to exist and its legal personality shall be deemed terminated. 2. All rights, privileges, powers, immunities, licenses, businesses, assets and properties of AMI Phil., whether real, personal or mixed, and including AMI Phil's goodwill and tradename and all debts due to AMI Phil. shall be deemed transferred to and vested in On-Semi Phil., the surviving corporation. 3. All of the liabilities, undertakings and obligations of AMI Phil., contractual or otherwise, express or implied, actual or contingent, shall be deemed transferred to and become the liabilities, undertakings and obligations of On-Semi Phil. 4. On-Semi Phil. shall not issue to AMI US any of its shares in exchange for the assets of AMI Phil. Instead, the additional capitalization shall be treated as premium and applied as additional paid-in capital of AMI US in the books of On-Semi Phil. as a result of the merger. Based on the foregoing representations, you now request for confirmation of your opinion that 1. The merger of On-Semi Phil. and AMI Phil. with On-Semi Phil. as the surviving entity is a tax-free merger within the contemplation of Section 40 (C) (2) and (6) (b) of the Tax Code of 1997, and consequently, any gain which may be realized out of the transfer of the assets, properties, business, liabilities and obligations of AMI Phil. to On-Semi Phil. shall not be recognized. The tax deferred character of the merger under Section 40 (C) and (6) (b) of the Tax Code of 1997, is not affected by the non-issuance by the On-Semi Phil. of its shares of stock in exchange for the assets and liabilities of AMI Phil. aDcEIH 2. Since On-Semi Phil. and AMI Phil. are both wholly-owned by AMI US, no shares of stock shall be issued by the surviving company, On-Semi Phil. Since there is no issuance of shares by On-Semi Phil., no documentary stamp tax are due thereon. 3. The transfer of any and all kinds of properties by AMI Phil. to On-Semi Phil. pursuant to the merger between the two corporations is likewise not subject to documentary stamp tax. 4. The merger is not subject to any gift tax as there is no intention to donate on the part of any of the parties. 5. The transfer of the properties of AMI Phil. to On-Semi Phil. is not subject to value-added tax (VAT). In reply thereto, please be informed that your opinion is hereby confirmed as follows 1. The foregoing merger of On-Semi Phil. and AMI Phil. is a merger within the contemplation of Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax Code because On-Semi Phil. shall acquire/assume all the assets and liabilities of AMI Phil. solely for stocks and because the merger shall be undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. The tax deferred character of the merger is not affected by the non-issuance by On-Semi Phil. of its shares of stock in exchange for the assets and liabilities of AMI Phil. 2. Since both On-Semi Phil. and AMI Phil. are wholly-owned by AMI US, no shares of stock shall be issued by the surviving company, On-Semi Phil., no documentary stamp tax shall be due thereon. 3. No Documentary Stamp Tax ("DST") is due on the transfers made pursuant to the Plan of Merger under Section 199 (m) of the Tax Code, as amended by Republic Act No. 9243, in relation of Section 40 (C) (2) of the Tax Code, as amended, transfer of properties including real property and shares of stocks, by AMI Phil. in favor of On-Semi Phil. 4. The foregoing transaction shall not be subject to donor's tax, since there is no intention to donate on the part of any of the parties and transaction is effected purely for business reasons [BIR Ruling No. DA-037-02, BIR Ruling No. DA 039-02, BIR Ruling No. DA 184-02]; 5. For value added tax ("VAT") purposes, the transfer of the assets of AMI Phil. to On-Semi Phil. pursuant to the merger will not be subject to any output tax, pursuant to Section 4.100-5 (b) (1) of Revenue Regulation No. 7-95, as amended, otherwise known as the Consolidated Value-Added Tax Regulations [BIR Ruling No. DA-075-03, BIR Ruling No. DA 184-02]. Furthermore, any unused input tax of AMI Phil. as of Effective Date of Merger will be absorbed by On-Semi Phil. as the surviving corporation pursuant to Section 4.100-5 (b) (3) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 16-2005; However, in order that the above-described reorganization can be considered as merger under Section 40 (C) (2) and (6) (b) of the Tax Code of 1997, the parties to the merger should comply with the following requirements set forth under Revenue Regulations No. 18-2001: 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 all cost or other basis of all property, including all stocks or securities, transferred incident to the plan; 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 of 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. 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, 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: 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 stock or securities and other property or money received from the exchange, including any liabilities assumed upon the exchange, and any liabilities 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 the exchange. C. 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 liabilities assumed on the exchange, or any liabilities to which any of the properties received were subject), in order to facilitate the determination of gain or loss from subsequent disposition of such stock or securities and other property received from the exchange. AEcTaS In addition to the foregoing requirements, the parties shall enclose with their respective income tax returns for the taxable year in which the tax-free exchange 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 persons shall include as a note to their respective audited financial statements for the taxable year in which the exchange occurred a statement to the effect that they hold such assets/shares acquired in a tax-free exchange and the year in which such exchange occurred, and in the taxable years until the subject properties are subsequently transferred to another transferee. The parties shall, cause to annotate at the back of the Certificates of Stock, the date the deed of exchange was executed, the original or historical cost of acquisition of the properties or shares of stock involved, and the fact that no gain or loss was recognized as a result of such exchange; provided however, that any violation by the Corporate Secretary of this condition shall be penalized under Section 275 of the same Code. It is further required that within ninety (90) days from receipt of this ruling, the parties to the transaction must submit to the Law Division, Bureau of Internal Revenue, a certified true copy by the Corporate Secretary, of duly annotated Certificates of Stock, in respect of the shares of stock of transferee corporation. 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