A "Listed Equity-Linked Warrant" Should be Treated as the Same Instrument as the Underlying Listed Stocks; Thus, the Stock Transaction Tax Rate of 1/2 of 1% on Gross Selling Price or Gross Value in Money of the Shares of Stock Sold, Bartered, Exchange or Otherwise Disposed Through the Facilities of the Philippine Stock Exchange shall be Applicable

June 25, 1996 BIR RULING NO. 068-96 21 24 (f) 000-00 68-96 Philippine National Bank PNB Complex, Roxas Blvd. Pasay City Attention: Mr . Valentine A . Araneta Gentlemen : This refers to your letter dated September 21, 1995 stating that the Committee On Privatization is considering the use of warrants in the next public offering of government holdings in Philippine National Bank (PNB) shares; that if the use of warrants pushes through, it shall be the first major offering with attached warrants; that it shall be a big step forward in enhancing the range of investment choices of Philippine savers and the capital market development of the country; that a warrant is a kind of option; that it gives the holder the privilege of buying a specified number of shares of the underlying common stock at a specified exercise price; that the purchase can be at any time on or before an expiration date; that mostly warrants start life by being attached to a bond or preferred stock issue, with the aim of improving the attractions of the issue to the investor; that warrants can often be detached from the original issue and be traded separately or independently in the stock exchange; that you are of the belief that warrants should be treated as the same instrument as the underlying listed stocks and therefore should be assessed the same rate of transaction tax; that right now, there are no collections received on warrants, the country can only gain revenues in terms of the transaction tax collections if the volume of warrants traded accelerates and also in the underlying stock because the warrants provided an additional feature to the stocks; that like you, it is the prospective underwriters view that a listed equity-linked warrant should be treated as the same instrument as the underlying listed stocks and only the same stock transaction tax rate of 1/2 of one percent on the value of the transaction shall be applicable for trades in the listed equity-linked warrants; and that there are many practical positive impart to said view such as: (1) the new listed instrument shall create new transaction volumes for itself and the underlying stocks such that the total volume increment in the exchanges shall redound to meaningful additional tax revenues; (2) foreign buying and trading interest in the Philippine Stock Exchange (PSE) shall also be enhanced by such a depending of the PSE; and (3) that the enhanced range of investment choices should be positive to the general saving public and be a positive factor in raising the domestic savings rate. In connection therewith, you are requesting confirmation of your opinion "that a listed equity-linked warrant" should be treated as the same instrument as the underlying listed stocks and therefore, the same stock transaction tax rate of 1/2 of 1% on the value of the transaction shall also be applicable for trades in the "listed equity-linked warrants." In reply thereto, please be informed that the term "Securities" as defined under Section 2 of the Revised Securities Act (BP Blg. 178) include, among others, shares of stock in a corporation and rights to subscribe for or to receive such shares, or warrants or rights to subscribe to or buy or sell shares. (See also Sec. 20 (t), Tax Code). Since as represented, warrant is a kind of option which gives the holder thereof the privilege of buying a specified number of shares of the underlying common stock at a specified exclusive price; that mostly warrants start life by being attached to a bond or preferred stock issue, with the aim of improving the attractions of the issue to the investor; and that they can often be detached from the original issue and be traded separately and independently in the stock exchange therefore warrants may be treated as the same instrument as the underlying listed stocks. According, your opinion that a "listed equity-linked warrant" should be treated as the same instrument as the underlying listed stocks, is hereby confirmed. Thus, the stock transaction tax rate of 1/2 of 1% imposed under Section 124-A of the Tax Code, as amended by Republic Act No. 7717 on the gross selling price or gross value in money of the shares of stock sold, bartered, exchange or otherwise disposed through the facilities of the Philippine Stock Exchange shall be applicable for trades in the "listed equity-linked warrants." (Rev. Regulations No. 3-95 as amended by Rev. Regulations No. 5-95). cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue