Sale of Sandvik Shares of Stocks - Tax Consequences

September 30, 1993 BIR RULING NO. 385-93 SALE OF SANDVIK SHARES OF STOCKS TAX CONSEQUENCES 25 (b) (5) (c) 161-83 385-93 Siguion Reyna, Montecillo and Ongsiako A. Soriano Bldg., Ayala Avenue Makati, Metro Manila Attention: Atty . J . Pacis Flores This refers to your letter dated August 22, 1990 stating that Sandvik Philippines, Inc. (SPI) is a corporation organized under the laws of the Philippines and is engaged in the business of importation, manufacture and sale at wholesale of Swedish steel products and tungsten carbide; that except for 5 qualifying shares which are registered in the name of the individual directors, 81,070 common shares of SPI with a par value of P100.00 per share, representing all SPI's issued and outstanding shares, are registered in the name of Sandvik AB (SAB), a corporation organized under the laws of Sweden; that Sandvik South East Asia Pte. Ltd., Singapore (SSEA) is a corporation organized under the laws of Singapore and is a wholly-owned subsidiary of SAB; that as an integral part of an on-going corporate reorganization among its subsidiaries, SAB adopted a policy decision to the effect that all shareholdings of the Sandvik group of companies located in South East Asia will be directly registered in the name of SSEA; that among the shares to be transferred to SSEA in pursuance of this policy are the above-mentioned common shares of SAB in SPI, along with the SAB shares in Sandvik HongKong, Taiwan, Thailand and Indonesia; that as a result of the reorganization abroad, all the 21,070 outstanding shares of SPI will have been transferred to and registered in the name of SSEA; that no cash will be involved in the proposed transfer of shares; and that in reality no sale or other disposition of stock will take place in the transfer of SPI shares of SAB to SSEA. In connection therewith, you now request a ruling on the tax consequence of the proposed transfer of all the outstanding shares of SAB in SPI to SSEA. In reply thereto, please be informed that on the basis of the facts as herein represented, no sale of stocks took place in the transfer of the SPI shares of SAB to SSEA since the same is an integral part of an on-going corporate reorganization among the subsidiaries of SAB such that all shareholdings of the Sandvik group of companies located in South East Asia will be directly registered in the name of SSEA. Moreover, assuming that the transfer of the SPI shares from SAB to SSEA is taxable, under paragraph 4 of Article 13 in relation to paragraph 3 also of Article 13 of RP-Sweden Tax Treaty, the gain derived from the transfer is not taxable in the Philippines since the assets of SPI do not consist principally of immovable property. Thus, per verification dated September 23, 1993, SPI's immovable or real property is less than 51% of its total assets, actually less than 6% as shown by SPI's audited Financial Statements for the year ended December 31, 1989. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation the same could not be substantiated, then the ruling shall be considered null and void. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue