BIR Ruling No. 238-12

March 29, 2012 BIR RULING NO. 238-12 127 (B);00-000 i-Pay Commerce Ventures, Inc. 34th Floor, RCBC Plaza Yuchengco Tower 2 Ayala Avenue, Makati City Attention: Mr. Alejandro James A. Chiongbian President Gentlemen : This refers to your letter dated December 13, 2011 relative to your letters dated October 27, 2011 and September 22, 2011 stating that i-Pay Commerce Ventures, Inc. (i-Pay) is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200705624 with TIN 006-711-079; that it is primarily organized "To provide end-to-end payment solutions, card issuance platforms, payment vehicles linked to electronic wallets, switching solutions, remittance services, customer relationship management applications, acquiring solutions, and any other value added services for payment processing and marketing these services to financial and non-financial institutions, merchants, points of sales, other service providers and the general public through the internet, phone and through any other means of communications for local and foreign markets." that i-Pay has an authorized capital stock of P10,000,000.00 divided into 10,000,000 common shares with a par value of P1.00 per share, of which 7,500,000 common shares are issued and outstanding; that on October 14, 2011, the Board of Directors and stockholders of i-Pay approved to increase i-Pay's authorized capital stock from P10,000,000.00 divided into 10,000,000 common shares with a par value of P1.00 per share, to P200,000,000.00 divided into 200,000,000 common shares with a par value of P1.00 per share; that IP Ventures, Inc. (IPVI) is a corporation organized and existing under the laws of the Philippines with an authorized capital stock of P15,000,000.00 divided into 1,500,000,000 common shares with a par value of P0.01 per share, of which 1,249,827,468 common shares are issued and outstanding; that IPVI has 8 corporate stockholders and 19 individual stockholders for a total of 27 stockholders; that of the outstanding common shares of IPVI, 24.04% is held by IPVG Employees, Inc. on behalf of 708 public shareholders; that on November 18, 2011, a Subscription Agreement/Deed of Assignment of Advances was executed by IPVI, as Subscriber, and i-Pay, as the Company, whereby the Subscriber has accounts receivables from the Company in the total amount of P40,372,578.64 representing shareholders' advances to the Company; that Subscriber has subscribed 40,372,579 shares of stock out of the increase in the authorized capital stock of the i-Pay at a subscription price of One Peso (P1.00) per share; that the payment of the said subscription of the subject shares shall be by way of conversion of all of the Subscriber's (IPVI) advances to and receivables from i-Pay in the total amount of P40,372,578.64; that i-Pay is registered with the Board of Investments (BOI) and is in the process of preparing its application for listing its shares by way of introduction with the PSE pursuant to its listing rules and regulations; and that the Listing Rules of the PSE provide that no closely held corporation may list its stocks by way of introduction, particularly: AHECcT "Section 1. Listing by Way of Introduction. Listing of securities by way of introduction may be appropriate in the following circumstances: xxx xxx xxx (e) where public offering of securities is mandated by law or applicable regulations; Provided, that the applicant company secures a clearance from the relevant agency stating that such agency does not object to the listing by way of introduction of the securities of the company; Provided further that a company which is considered as a 'closely-held corporation', as such term is defined under Section 127(B) of the National Internal Revenue Code of 1997, is not qualified to list by way of introduction under this subsection (e). A subsidiary company that is not qualified to list under subsection (e) hereof cannot list its holding company which does not meet the requirements of this Section." Based on the foregoing representations, you now request for ruling that i-Pay is not a closely held corporation for purposes of the Initial Public Offering (IPO) Tax under Section 127 (B) of the Tax Code of 1997, as amended, and consequently, i-Pay or any selling shareholder is not subject to the IPO Tax upon the listing of the i-Pay shares with the PSE. In reply thereto, please be informed that Section 127 (B) of the Tax Code of 1997, as implemented by Revenue Regulations No. 6-2008, provides that "(B) Tax on Shares of Stock Sold or Exchanged through Initial Public Offering. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely-held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange: Up to twenty-five percent (25%) 4% Over twenty-five percent (25%) but not over Thirty-three and one third percent (33 1/3%) 2% Over thirty-three and one third percent (33 1/3%) 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering. For purposes of this Section, the term 'closely-held corporation' means any corporation at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. For purposes of determining whether the corporation is a closely-held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied: ADCEcI (1) Stock Not Owned by Individuals. Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries. (2) Family and Partnership Ownerships. An individual shall be considered as owning the stock owned directly or indirectly, by or for his family, or by or for his partner. For purposes of this paragraph, the 'family of an individual' includes only his brothers and sisters (whether by whole or half-blood) spouse, ancestors and lineal descendants. (3) Option. If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be considered as an option to acquire such stock. (4) Constructive Ownership as Actual Ownership. Stock constructively owned by reason of the application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2),be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock." Corollarily, Section 2 (q) of Revenue Regulations No. 6-2008 defines a "Closely-held Corporation" as corporation at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. As such, i-Pay does not fall within the contemplation of the term "closely-held corporation", considering that i-Pay is owned by IPVI, and thus 74.94% of its outstanding capital stock is indirectly owned by the 736 direct and indirect stockholders of IPVI. WHEREFORE, in view of the foregoing , this Office holds that i-Pay is not a closely-held corporation and consequently i-Pay and any selling shareholders are NOT subject to the initial public offering tax under Section 127 (B) of the Tax Code of 1997, as implemented by Revenue Regulations No. 6-2008. 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. DTSaHI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue