Transfer of Shares in Exchange for Shares of Stock Subject to Capital Gains Tax

July 2, 2004 BIR RULING NO. 006-04 000-00 Mirant (Philippines) Corporation (Formerly: Southern Energy Holdings Phils., Inc.) 5/F CTC Building, 2232 Roxas Boulevard, Pasay City Attention: Mr. Rito Magalso Gentlemen : This refers to BIR Ruling No. S-40-230-99 dated November 12, 1999 relative to the transfer of shares by CEPA Pangasinan Electric Limited (CPEL for brevity) and CEPA Navotas I Limited (CNL for brevity) solely in exchange for shares of stock of Southern Energy Holdings Phils., Inc. (SEHPI for brevity). It may be recalled that BIR Ruling No. S-40-230-99 dated November 12, 1999 was issued in your favor stating, among other things, that "no gain or loss shall be recognized both to the transferors and the transferee corporation on the transfer by CNL and CPEL of their properties solely in exchange for the shares of stocks of SEHPI . . . considering as a consequence of the exchange, CNL and CPEL gained control of SEHPI by owning 72.36% of the total voting power of all classes of stocks entitled to vote." However, as a condition for the availment of the non-recognition of gain provided for in Section 40(C)(2) and 6(c) of the 1997 Tax Code, the mandatory requirements set forth in the said Ruling should be strictly complied with. In a Memorandum dated May 7, 2002 written by Revenue Officer Larry P. Payawal of Revenue District Office No. 51, Pasay City, it was reported that despite verbal and written requests to comply with the said requirements, you failed to do so. The last paragraph of the Ruling categorically states that: "This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void ." (Emphasis supplied.) In view thereof, since you failed to comply with the mandatory requirements set forth in the said Ruling, the same is hereby REVOKED and considered VOID. Consequently, the transfer of shares owned by CPEL and CNL in exchange for shares of stock of SEHPI is subject to capital gains tax pursuant to Section 27(D)(2) of the 1997 Tax Code. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue