Redemption of Shares Not Subject to Capital Gains Tax

May 19, 1999 BIR RULING NO. 070-99 000-00-070-99 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated May 6, 1998 requesting on behalf of your client, Keppel Fels Energy Holdings, Inc. (FEHI), for confirmation of your opinion that the redemption by FEHI of its 433,330 shares of stock from BV Power Limited (BVPL) and 66,665 shares from Okachi Investments, Limited (OIL) at the issue price of P2,500.00 per share or its equivalent of US$95.27 converted at the exchange rate of P26.241 to a US dollar, which will not result to any capital gain on the part of BVPL and OIL, is not subject to capital gains tax. It is represented that FEHI is a domestic corporation duly registered with the Securities and Exchange Commission, with the following primary purpose: "To invest or acquire interest in, purchase, own or hold, directly or indirectly, shares of stock, debentures or securities and all other properties of whatever kind or nature, personal or movable, and to manage or dispose of the same as the corporation may deem necessary or advisable in the conduct of its business, without in any manner operating as an investment house without engaging as stockholder or holder of service." prcd that FEHI has an authorized capital stock of P1,000,000.00 divided into 500,000 common shares with a par value of P1.00 per share and 500,000 preferred shares with a par value of P1.00 per share; that the preferred shares are non-cumulative, voting and convertible to common share and were issued at a price of P2,500.00 per share; that on May 15, 1997, FEHI, BVPL and OIL executed separate Subscription Agreement prescribing a redemption price of P2,500.00 per share or its equivalent of US$95.27 converted at the exchange rate of P26.241 to a US dollar; that the preferred shares subscribed are as follows: BV Power Limited - 433,330 shares Okachi Investments Limited - 166,665 shares and that at the option of the above stockholders, the above preferred shares have been offered and accepted by FEHI for redemption at the issue price of P2,500.00 per share or its equivalent of US$95.27 converted at the exchange rate of P26.241 to a US dollar. In reply, please be informed that upon the redemption by FEHI of its preferred shares, the preferred shareholders will realize capital gain or loss consisting of the difference between the adjusted basis of the shares and the redemption price of such shares. (BIR Ruling No. 014-85 dated February 7, 1985) Since the 433,330 shares of BVPL and the 66,665 shares of OIL will be redeemed at the price of P2,500.00 or its equivalent of US$95.27 converted at the exchange rate of P26.241 to a US dollar, which is the same as the issue price or adjusted basis of said shares, the redemption of such shares by FEHI will not result to any capital gain on the part of BVPL and OIL. In view of the foregoing, since there is no taxable gain, the redemption by FEHI of the shares of BVPL and OIL will not be subject to capital gains tax. 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue