Abbott-Phil. is a Publicly-held Corporation Exempt from Improperly Accumulated Earnings Tax

June 25, 2002 BIR RULING NO. 025-02 29 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: R. C. Vinzon Tax Division Gentlemen : This refers to your letter dated January 24, 2002 requesting on behalf of your client, Abbott Laboratories (Philippines), Inc. hereinafter referred to as "Abbott-Phils." for confirmation that Abbott-Phils. is a publicly held corporation as defined under Revenue Regulations No. 2-2001, and hence, exempt from the Improperly Accumulated Earnings Tax (IAET) imposed under Section 29 of the Tax Code of 1997. It is represented that Abbott-Phils. is a corporation duly organized and existing under the laws of the Philippines with office address at 102 Epifanio De Los Santos Avenue, Mandaluyong City; that it is engaged in the business of manufacturing, buying, selling, importing, exporting, dealing of various drugs, pharmaceutical products and supplies as provided in its Articles of Incorporation; that Abbott-Phils. is a wholly owned subsidiary of Abbott Laboratories (USA) (hereinafter referred to as Abbott-US); that Abbott-US is a corporation organized and existing under the laws of the State of Illinois, USA whose shares are listed and traded in the New York Stock Exchange (NYSE) and six other stock exchanges; that as of year-end 2000, Abbott-US had 101,272 shareholders holding a combined 1,545,934,133 shares of common stock; and that in support of your request you submitted to this Office the following documents: 1. Copy of the year 2000 Annual Report of Abbott-US; 2. Notice of Annual Meeting of Shareholders and Proxy Statement for 2001; and 3. Duly authenticated Certification of the Vice-President and Treasurer of Abbott-US to the effect that as of September 30, 2001 (the most recent date for which the Securities and Exchange Commission Schedule 13F filings are available) the twenty largest shareholders of Abbott-US owned an aggregate of 30.1 percent of Abbott-US's issued and outstanding common shares. In reply, please be informed that pursuant to Section 4 of Revenue Regulations No. 2-2001, "Implementing the Provision on Improperly Accumulated Earnings Tax under Section 29 of the Tax Code of 1997" viz : "For purposes of these Regulations, closely-held corporations are those corporations at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations ." For purposes of determining whether the corporation is a closely held corporation , insofar as such determination is based on stock ownership, the following rates shall be applied . (1) Stock Not Owned by Individuals Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. (2) Family and Partnership Ownership An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family, or by or for his partner. For purposes of this paragraph, the `family of an individual' includes his brothers or sisters (whether by whole or halfblood) spouse, ancestors and lineal descendants. (3) Option to Acquire Stocks If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of option shall be considered as an option to acquire such stock. (4) Constructive Ownership as Actual Ownership Stock constructively owned by reason of the application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by such person, but stock constructively owned by the individual by reason of the application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock. Such being the case, since Abbott-Phils. is a wholly-owned subsidiary of Abbott-US, such shares will be considered as being owned proportionately by the Abbott-US shareholders. The ownership of a domestic corporation for purposes of determining whether it is a closely held corporation or a publicly held corporation is ultimately traced to the individual shareholders of the parent company . Thus, where at least 50% of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at least 21 or more individuals, the corporation is considered publicly-held corporation as the term is defined under the Regulations. Further, Section 29 of the Tax Code of 1997 provides, viz : "Sec. 29. Imposition of Improperly Accumulated Earnings Tax. (A) . . . (B) Corporations Subject to Improperly Accumulated Earnings Tax. (1) In General. The improperly accumulated earnings tax imposed in the preceding Section shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. (2) Exceptions. The improperly accumulated earnings tax as provided for under this Section shall not apply to: (a) Publicly-held corporation ; (b) Banks and other non-bank financial intermediaries; and (c) Insurance Companies. (Emphasis ours) xxx xxx xxx." Accordingly, this Office confirms your opinion that Abbott-Phils. is considered a publicly-held corporation exempt from the Improperly Accumulated Earnings Tax (IAET), based on the representation that as of the year-end 2000, Abbott-US had 101,272 shareholders holding a combined 1,545,934,133 shares of common stock and the twenty largest shareholders of Abbott-US as of September 30, 2001 own an aggregate of 30.1 percent of Abbott-US' issued and outstanding shares. This ruling is being issued in 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.) REN G. BAEZ Commissioner of Internal Revenue