Tax Consequence of the Merger of Chemical Bank and Chase Manhattan Bank National Association

October 25, 1996 BIR RULING NO. 112-96 34; 99 000-00 112-96 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . C . Gison Gentlemen : This refers to your letter dated May 2, 1996 requesting for a ruling on the Philippine tax consequence of the merger of Chemical Bank (Chembank) and Chase Manhattan Bank National Association (CMB). cdt It is represented that Chembank and CMB are both United States corporations, authorized to engage in Philippine banking business by the Bangko Sentral ng Pilipinas (BSP); that the Philippine operations of Chembank and CMB consist of the following: 1. The branch and the offshore banking unit (OBU) of Chembank (collectively referred to as Chembank-Phils.) the Philippine branch was authorized by the BSP on September 7, 1995 to operate as a branch with full banking authority, and started commercial operations on September 26, 1995, which branch operations are separate and distinct from the OBU operations; and 2. The OBU of CMB (CMB-Phils.); that Chembank and CMB will merge with the following effects: 1. The separate existence of CMB shall cease, and CMB shall be merged with and into Chembank. 2. The Organization Certificate of Chembank in effect prior to the effective time of the merger shall be the Organization Certificate of the surviving bank. 3. The name "Chase Manhattan Bank" shall be carried over to the surviving bank. 4. The By-laws of Chembank as in effect prior to the effective time of the merger shall be the By-laws of the surviving bank. 5. The surviving bank shall continue to operate each of the existing branches of CMB, as of the effective time of the merger. 6. The head office of CMB at 1 Chase Manhattan Plaza, New York, New York, shall become a branch of the surviving bank. 7. All shares of CMB common stock that are owned by CMB as treasury stock shall be cancelled and retired and shall cease to exist, and no stock of Chembank or other consideration shall be delivered in exchange therefor. 8. The issued and outstanding shares of CMB common stock with a par value of US $15 per share, shall be converted collectively into such number of fully paid and non-assessable shares of common stock with a par value of US $12 per share of Chembank (the Chembank Common Stock) rounded upward or downward to the nearest whole share of Chembank Common Stock, which is the product of (i) (a) the amount of equity capital of CMB as reflected in the Report of Condition for the period ending March 31, 1996, divided by (b) the amount of equity capital of Chembank as reflected in the Report of Condition of Chembank for the period ending March 31, 1996, times (ii) the total number of shares of Chembank Common Stock outstanding at the effective time of the merger all such shares of CMB common stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist. 9. The surviving bank shall deliver a certificate or certificates representing the shares of Chembank common stock to the holder of CMB common stock in exchange for, and upon delivery of, certificates representing the outstanding shares of CMB common stock. LLphil that the foregoing effects of merger are pursuant to Section 602 (2) of the New York Banking Law (NYBL), which governs the effects of the Merger "All the property, rights, power, and franchises of any corporation that shall be so merged shall vest in the receiving corporation and the receiving corporation shall be subject to and be deemed to have assumed all of the debts, liabilities, obligations, and duties of such merged corporation and to have succeeded to all of its relationship, fiduciary or otherwise, as fully and to the same extent as if such property, rights, powers, franchises, debts, liabilities, obligations, duties and relationship had been originally acquired, incurred, or entered into by the receiving corporation." In reply, please be informed that based on the foregoing representations, no taxable sale, exchange or disposition of properties/stocks took place between Chembank Philippine branch and CMB OBU or Philippine branch, since there is no effective transfer of beneficial ownership. In a merger, the surviving corporation (Chembank) succeeds to the rights and liabilities of the absorbed corporation (CMB), and merely carries on the identity of the latter. (Cashman v. Browhee, 27 N.E. 560). Consequently, no gain was realized by the surviving bank Chembank or its Philippine branch. ( BIR Ruling No. 595-88 dated December 23, 1988. Such being the case, this office hereby confirms your opinion that 1. No gain or loss shall be recognized on the transfer by the CMB OBU of its resources and liabilities to the Chembank Philippine Branch as a consequence of the Merger; and 2. No gain or loss shall be recognized on the exchange by CMB shareholders of their CMB shares for Chembank Common Stock. Moreover, considering that the transfer of the assets and liabilities of CMB OBU to Chembank Philippine branch is pursuant to the merger of their parent companies, this Office likewise confirms your opinion that the said transfer shall not be considered as a transfer of property for insufficient consideration and is, therefore, not subject to donors or to gift tax, since there is no intention to donate on the part of either or both parties and the transaction is effected purely for business reasons. Finally, value-added tax (VAT) is imposed on the sale, barter, and exchange of properties in the course of trade or business. Section 99 of the Tax Code, as amended, defines the phrase "in the course of trade or business" as the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The exchange of properties pursuant to a merger is not a disposition or exchange of properties "in the course of trade business" and is, therefore, not subject to VAT. In view thereof, this office also confirms your opinion that for VAT purposes, the transfer of assets, including tangible and movable properties pursuant to the merger by CMB-Phils. to Chembank-Phils., will not be subject to any output tax, and in the event that VAT will already be imposed on banks at the time the merger takes effect, any unused input tax of CMB-Phils. will be absorbed by the surviving corporation (Chembank-Phils.). 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