Issuance of Maricalum Mining Corp. Shares of Stock - Exempt from DST

August 17, 1993 BIR RULING NO. 355-93 ISSUANCE OF MARICALUM MINING CORP. SHARES OF STOCK EXEMPT FROM DST 28 (b) 045-92 355-93 Asset Privatization Trust 10th Floor, BA-Lepando Building 8747 Paseo de Roxas, Makati Metro Manila Attention: Mr . Ramon T . Garcia Chief Executive Trustee This refers to your letter dated October 13, 1993 stating that Maricalum Mining Corporation (MMC), a wholly owned government corporation engaged in mining and processing of copper ores in Sipalay, Negros Occidental, was transferred to you by the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) for privatization pursuant to Proclamation No. 50, as amended, and Administrative Order No. 14; that as a consequence of the transfer in your favor of MMC, you became the holder of P5 Million MMC shares which is its entire issued and outstanding shares of stock, and P3.258 Billion MMC Notes in favor of the government representing the unpaid price of substantially all of the fixed assets of the said corporation; that in consonance with the privatization program of the government, you offered/bidded for negotiated sale last August 18, 1992 ninety percent (90%) of the outstanding shares of MMC or P4.5 Million and the P3.258 Billion MMC Notes wherein "G" Holdings, Inc. (GHI), a domestic corporation emerged as the best bidder for P673,161,280.00; that the remaining ten percent (10%) or P500,000.00 MMC shares shall be sold later to small investors or company employees and to be converted into preferred shares; that the award to GHI, was approved by the Committee on Privatization (COP) on September 1, 1992; that as agreed upon with GHI, the closing conditions of the said sale would be for you to first effect a capital restructuring and then to convert the MMC notes and MMC shares to reflect their real values in proportion to the purchase price of P673,161,280.00 prior to the actual transfer of the shares and notes to GHI in accordance with the following formula: Purchase Price (P673,161,280.00) = Conversion Ratio Value of Notes + Value of Shares (P3.253B) (P4.1 M) that your restructuring will result in the P3.258 B MMC Notes converted into P122,233,002.00 new MMC common shares and P550,000,000.00, in new MMC Notes; that the conversion of part of the restructured MMC notes into equity shall be accomplished by increasing the authorized capital stock of MMC from the present P20 Million to P500 Million with you subscribing to the increase in capitalization and fully paying the same with the use of the restructured MMC notes for P122,233,002.00; that the difference between the total liability of P3.258 B, on the one hand, and the new notes of P550 M and new equity of P122,233,002.00 on the other, or a balance of P1.581 B will be reflected as excess paid-in, and that thereafter, you shall transfer/assign the existing MMC shares (P4.5M), the converted MMC shares valued at P122,233,002.00 and the restructured MMC notes for P550 M in favor of GHI to effect the privatization of MMC. Based on the foregoing representations and documents submitted you now request in effect for a ruling confirming your following opinions: "1) That the consequent write-off of the difference between the original value of the financial notes of P3.258 B and the values of the new MMC notes and MMC shares as restructured does not constitute a taxable income of, or a donation to MMC; "2) That the original issuance of the MMC shares of stock from the present authorized capital stock of MMC, and/or from the increase in the corporation's authorized capital stock to P500 Million, is exempt from documentary stamp tax imposed by the National Internal Revenue Code (Tax Code); and casia "3) That the subsequent transfer/assignment of all MMC shares of stock (both existing and converted shares) by APT in favor of the buyer, GHI, is exempt from both capital gains tax and documentary stamp tax, and that the Corporate Secretary of MMC can immediately record the transfer/assignment of the shares in the Stock and Transfer Book of MMC as well as the immediate issuance of new stock certificates in favor of GHI." In reply, please be informed that under Section 55 of Revenue Regulations No. 2, otherwise known as the Income Tax Regulations, receipt by a corporation of the subscription price of shares of its capital stock upon their original issuance gives rise to neither taxable gain nor deductible loss, whether the subscription or issue price be in excess of or less than the par or stated value of such stocks. Such being the case, and since the consequent write-off of the difference between the original value of the financial notes of P3.258 B and the values of the new MMC notes and MMC shares as restructured is merely part of the process of, or incidental to the transfer of APT's assets to the buyer, your opinion that such write-off of the aforesaid difference between the original value of the financial notes of P3.258 B and the values of the new MMC shares as restructured does not constitute a taxable income of MMC is hereby confirmed (BIR Ruling No. 045-92). Moreover, Section 35 of Proclamation No. 50 provides, viz. : "Sec. 351. Exemption from Taxes, Fees and Other Charges . The provisions of any law to the contrary notwithstanding, the Trust as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and/or from the Trust to a private acquisitor or buyer imposed by the National Government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps, registration fees and the like: Provided, that in case the said government institutions acquired the said assets by foreclosure, the non-payment of similar taxes, fees, charges, imposts, and assessments shall not be a bar to the consolidation of title in the foreclosing institutions and the subsequent passing of title to the Trust or the corporations held by the Trust." Accordingly, your following opinions: 1) That the original issuance of the MMC shares of stock from the present authorized capital of MMC, and/or from the increase in the corporation's authorized capital stock to P500 Million, is exempt from documentary stamp tax imposed by the National Internal Revenue Code (Tax Code); and 2) That the subsequent transfer/assignment of all MMC shares of stock (both existing and converted shares) by APT in favor of the buyer, GHI, is exempt from both capital gains tax and documentary stamp tax. are hereby likewise confirmed. Furthermore, this will serve as an authority for the Corporate Secretary of MMC to immediately record the transfer/assignment of the shares in the Stock and Transfer Book of MMC as well as the immediate issuance of new stock certificates in favor of GHI. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue