Transfer of Legal Title to Outstanding Shares of Stock, Without a Transfer of Beneficial Title, from Stockholders to the Nominee, and Vice-Versa, Not Subject to Capital Gains Tax Nor to the Stock Transaction Tax and the Documentary Stamp Tax

April 3, 1997 BIR RULING NO. 039-97 21 (d) 24 (e) (2) 000-00 039-97 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30/F Citibank Tower Paseo de Roxas, Makati City Attention: Edmundo P . Guevarra and Priscilla B . Valer Gentlemen : This refers to your letter dated February 20, 1997 requesting, in behalf of your client, the Philippine Central Depository, Inc. ("PCD"), for confirmation of your opinion that the transfer of legal title to outstanding shares of stock, without a transfer of beneficial title, from stockholders to the PCD Nominee Corp., as nominee, and vice-versa , is not subject to the capital gains tax imposed under Sections 21 (d), 22(a) (3), 24(e) (2) and 25(a) (6) (C) of the Tax Code or the stock transaction tax imposed under Section 124-A of the Tax Code and the documentary stamp tax imposed under Section 176 of the Tax Code. It is represented that PCD is an entity licensed by the Securities and Exchange Commission ("SEC") as a depository of, among others, shares of stock listed and traded in the Philippine Stock Exchange ("PSE"); that its primary mandate is, among others, to introduce a scripless book-entry system for the settlement of PSE trades, in order to address the problem of delay, inefficiency and even fraud attending the existing paper-based settlement procedure; that for PCD to carry out this mandate, the shares of stock of the PSE-listed companies must first be "lodged" into the PCD System for "immobilization"; that lodgment is the process by which stockholders of the PSE-listed company transfer the legal title over their shares of stock in favor of PCD Nominee Corp. ("PCD Nominee"), a corporation wholly owned by PCD whose sole purpose is to act as nominee and legal title holder of all shares of stock lodged into PCD (beneficial title to the "lodged" shares remains with the lodging stockholders); that immobilization is the process by which the share certificates of lodging stockholders are cancelled by the Transfer Agent and a new stock certificate covering all the shares lodged ("Jumbo Certificate") issued in the name of PCD Nominee, in order that settlement of PSE trades of the PSE-listed company can be effected by mere book-entry transfer of beneficial title in the PCD System without the transfer of stock certificates covering the traded shares; and that no consideration is paid for the transfer of legal title to PCD Nominee. The Corporation Code requires that all shares of stock of a corporation must be evidenced by a certificate and a stockholder who has fully paid his subscription has the right to demand such certificate. Thus, it is also represented that if a stockholder wishes to withdraw his stockholdings from the PCD System, the PCD has a procedure of "upliftment", under which PCD Nominee will now transfer back to the stockholder the legal title to the shares lodged in order that legal and beneficial title will once again be consolidated in the stockholder; that under this process, the Jumbo Certificate is surrendered to the Transfer Agent, which then issues a new stock certificate in the name of the uplifting stockholder and a new Jumbo Certificate for the balance; and that again, no consideration is paid for the transfer of legal title back to the beneficial owner. In reply, please be informed that the conveyance of the legal title over the shares to a trustee or nominee without transfer of beneficial title and without any consideration does not involve an actual transfer of ownership over the shares, hence, not subject to the capital gains tax and documentary stamp tax. Thus, your opinion that the transfer of legal title over the shares from the lodging stockholders to PCD Nominee Corp., or from PCD Nominee Corp. to the uplifting stockholders, is not subject to capital gains tax or stock transaction tax and documentary stamp tax because there is no actual transfer of ownership over the aforementioned shares of stock is hereby confirmed. (BIR Ruling Nos. UN-258-95, 123-93, 124-93, 125-93, 127-93, 128-93 and 129-93) However, the transfers of beneficial ownership over the lodged shares shall be subject to capital gains tax or stock transaction tax, as the case may be, and to documentary stamp tax. Moreover, under Section 191 of the Documentary Stamp Tax Regulations (Revenue Regulations No. 26), the conveyance of property to a trustee is exempt from documentary stamp tax. Section 191 of said Regulations provides: "Section 191. Conveyance to trustees or from trustee to cestui que trust, without consideration . Conveyances to a trustee without valuable consideration, or from a trustee to a cestui que trust without valuable consideration are not subject to tax." Thus, your opinion that the conveyance of the shares from the stockholders to the nominee PCD Nominee Corporation and versa, is not subject to documentary stamp tax pursuant to Section 191 of Revenue Regulations No. 26, otherwise known as The Documentary Stamp Tax Regulations, is likewise hereby confirmed. Accordingly, the Transfer Agents of the publicly listed companies may cancel the outstanding shares certificate in the name of the stockholders and issue the Jumbo Certificate in the name of PCD Nominee Corporation for immobilization. Likewise, in the event a shareholder withdraws his stockholdings from the PCD System, the Transfer Agents shall likewise issue a new stock certificate in the name of the uplifting stockholder and a new Jumbo Certificate for the balance upon surrender of the original Jumbo Certificate in order that the legal and beneficial title will once again be consolidated in the stockholder. 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. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue