Gain Derived by Subic Bay Waterfront Development Corp. from Sale of Its Shares in Subic Bay Yacht Club, Inc. Subject to Preferential Tax rate of 5%

November 26, 1996 BIR RULING NO. 129-96 R.A. 7227 000-00 129-96 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . M . F . A . Balili Gentlemen : This refers to your letter dated June 8, 1996, requesting for confirmation of your opinion that the gain derived by your client, Subic Bay Waterfront Development Corporation (SBWDC), from the sale of its shares in Subic Bay Yacht Club, Inc. (SBYC) is subject to the preferential tax rate of 5% imposed under Section 12 (c) of Republic Act No. 7227, otherwise known as The Bases Conversion and Development Act of 1992. It is represented that SBWDC was established primarily to engage in real estate development, ownership and operation of hospitality enterprises within the Subic Bay Freeport (SBF) Zone; that on June 29, 1995, SBWDC was issued a Certificate of Registration by the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227 as a Subic Bay Freeport Zone Enterprise (SBFZ Enterprise); that SBYC, another SBFZ Enterprise, was incorporated for the primary purpose of promoting, on a non-profit basis, the social, educational, athletic well-being of its shareholders/members; that in line with this purpose, SBYC will establish a world class yacht club complex which will feature an integrated marina/yacht club, commercial, residential, recreational, and tourism facilities that will be made available exclusively to qualified members; that in July 1995, SBWDC entered into a Subscription Agreement with SBYC for the subscription to 2,988 common no par value shares of SBYC with an issue value of P1,000.00 per share or a total issued value of P2,988,000.00; that pursuant to the said Agreement, SBWDC paid the sum of P2,988,000.00 as full payment for the SBYC shares, and as additional consideration for the said shares , SBWDC agreed to: (1) assign, transfer and convey to SBYC its long-term leasehold right over a portion of the property lease by SBWDC from SBMA appraised by Asian Appraisals, Inc. to be P1,300,000,000.00, and, (2) to render the services, supply the materials and perform the obligations relative to the development and construction of the yacht club and other facilities in the complex; and that SBWDC now intends to sell its SBYC shares to third parties, the proceeds of which shall be utilized to cover the development and construction costs of SBYC's yacht club and other facilities in the complex. cdll In reply, please be informed that under Section 12(c) of Republic Act No. 7227 reading: "Section 12. Subic Special Economic Zone . (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone . In lieu of paying taxes, three (3%) of the gross income earned by all business and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the city of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas." a SBFZ enterprises is subject only to the preferential income tax rate of 5% on income earned/derived from business operations within the Secured Area or from or from foreign sources. [Section 4(A)(d), Revenue Regulations No. 1-95, implementing R.A. 7227] In view of the foregoing, and since the sale by SBWDC, a SBFZ enterprise, of its shares of stock in SBYC, another SBFZ enterprise, is considered a sale within the SBF Zone, the proceeds of which, as represented, shall be utilized to cover the development and construction costs of SBYC's yacht club and other facilities in the complex within the Zone, your opinion that the gain derived by SBWDC from the sale of SBYC shares of stock to third parties shall not be subject to the capital gains tax and documentary stamp tax imposed under the Tax Code, as amended, but to the preferential tax rate of 5% on gross income as contemplated under Section 12(c) of R.A. No. 7227 and as implemented by Section 6(a) in relation to Section 3(o) of Revenue Regulations No. 1-95, is hereby confirmed. Consequently, upon the sale of its SBYC shares, SBWDC should therefore file its return, pay its tax, and make the proper recording pursuant to Sections 7 and 8 of Revenue Regulations No. 1-95. This serves as authority for the Corporate Secretary of Subic Bay Yacht Club, Inc. to immediately record the sale/transfer of shares in its Stock and Transfer Book, as well as the issuance of the new stock certificates in favor of third parties to whom Subic Waterfront Development Corporation will sell its Subic Bay Yacht Club, Inc. shares of stock. LLjur 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, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue