Whether the Assignment by Arimco of Its Financial and Technical Assistance Agreement (FTAA) to a Wholly Owned Philippine Subsidiary of the Climax Group Pursuant to the Provisions of the FTAA is Not Subject to Income Tax/Donor's Tax

October 10, 1995 BIR RULING NO. 152-95 24-000-00-152-95 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Mr . R . R . Rubio This refers to your letter dated March 17, 1995 representing that your client, Arimco Mining Corporation (Arimco) is a domestic corporation which is jointly owned and controlled by the Australian companies, namely: Climax Mining Ltd. Arimco, and Petroleum Securities Australian Ltd. (the Climax Group) that Arimco entered into a Financial and Technical Assistance Agreement (FTAA) with the Philippine Government, as represented by His Excellency, President Fidel V. Ramos and the Honorable Angel C. Alcala, the Secretary of the Department of Environment and Natural Resources (DENR); that under the terms of the FTAA, Arimco was given the right to explore for minerals in a specific contract area and if justified, to develop and commercially utilize the mineral deposits existing in the area; that Arimco was appointed and constituted the exclusive party with the right to conduct the mineral exploration in the contract area and to mine, market, dispose or alienate the mineral products that may be found therein; that it should be noted that at this stage, the property which is the subject of the FTAA is only in its exploration phase and that the first target within the FTAA area is encouraging a detailed drilling and feasibility study to determine whether it can be economically exploited in terms of international mining standards; that this study will determine whether this property will be advanced to its development phase; that in this regard Section 13.3(a) of the FTAA envisaged that the role of Arimco has been to apply for and hold the FTAA for the benefit of the ultimate project operating vehicle; that specifically, Section 13.3(a) of the FTAA obliges Arimco to set up an operating vehicle; that the said section of the FTAA requires Arimco to cause the formation of an operating entity/ies; that as defined in Section 2.3 of the FTAA, "operating entity" means any entity or entities which may be structured and organized by Arimco after completion of a bankable feasibility study to undertake the management, development, mining and processing of ores or the properties or other areas within the exploration contract area and the marketing of the products; that on the other hand, Sections 13.2(e ) and 13.4(e)(i) grant Arimco the right to sell, assign, transfer, convey or otherwise dispose of all its rights, interests and obligations under this FTAA; that as an integral part of the ongoing organization of the Climax group of companies (Group), the Group will cause the formation of the new Philippine holding company which in turn will have a Philippine subsidiary; that it is around these two companies that the ultimate operating structure will be developed (with the FTAA being held by the Philippine subsidiary); that the Philippine subsidiary will be the operating entity that Arimco will form pursuant to Section 13.3(a) of the FTAA; that accordingly, Arimco will have to assign the FTAA to the Philippine subsidiary without any consideration; that for commercial reasons, it is critical that the FTAA should be in the operating vehicle (i.e. Philippine subsidiary) rather than in Arimco; and that since no cash will be involved and since the Philippines and Arimco are both effectively owned by the Climax Group, in reality, no sale of the FTAA will take place. Based on the foregoing representations you now request for a ruling to confirm your opinion that the assignment by Arimco of its FTAA, to a wholly owned Philippine subsidiary of the Climax Group, pursuant to the provisions of the said FTAA, is not subject to income tax/donor's tax. In reply, please be informed that since the proposed assignment of the FTAA by Arimco Mining Corporation to a wholly owned Philippine subsidiary of the Climax Group pursuant to the provisions of the FTAA, does not involve any consideration, the same is therefore not a taxable transaction; hence, not subject to Philippine income tax. In addition, donation contemplates an act of liberality whereby a person disposes gratuitously a thing or a right in favor of another, who accepts it. Donative intent or intent on the part of the donor to make a gift must exist. (Perez vs. The Commissioner of Internal Revenue, CTA Case No. 1707, February 10, 1969). Thus, considering that the assignment of the FTAA to an "operating vehicle" is part and parcel of the FTAA and there is lack of donative intent on the part of the transferor, Arimco, then the aforesaid assignment of the FTAA is therefore not subject to the donor's tax. In view thereof, your opinion that the assignment by Arimco of its FTAA, to a wholly owned Philippine subsidiary of the Climax Group, pursuant to the provisions of the said FTAA, is not subject to income tax and/or donor's tax is hereby confirmed. 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. llcd Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue