BIR Ruling No. 508-12

August 3, 2012 BIR RULING NO. 508-12 Sec. 40 (C) (2);00-000 DeGuzman Celis & Dionisio Law Offices Suite C, 15th Floor, STRATA 2000 Building F. Ortigas Jr. Road, Ortigas Center Pasig City Attention: Attys. Mariano L. Celis II Amalia E. Dionisio Gentlemen : This refers to your letter dated December 3, 2010 stating that Nutri-Asia Inc. (doing business under the name and style of UFC Philippines, hereinafter referred to as "NAI") is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A1996-2319 with TIN 410-004-627-848; that it has an authorized capital stock of One Hundred Million Pesos (P100,000,000.00) divided into Ten Million (10,000,000) shares with a par value of Ten Pesos (P 10.00) per share; that the total capital stock issued and outstanding of NAI amounts to Sixty Three Million Pesos (P63,000,000.00);that on the other hand, NA Prime Resources Corporation (NA Prime) is a domestic corporation duly registered with the SEC under SEC Registration No. A200010829 with TIN 207-013-254; that 100% of the outstanding capital stock of which is owned by NAI; that it has an authorized capital stock of Four Million Pesos (P4,000,000.00) divided into Forty Thousand (40,000) shares with a par value of One Hundred Pesos (P100.00) per share, 10,000 of which have been issued and outstanding; that the respective Board of Directors of NAI and NA Prime have effected a merger with NAI, as the surviving corporation, and the stockholders of the said corporations approved such merger, for the following business purposes: (a) The integration of the administrative facilities of the constituent corporations will result in economies of scale and efficiency of operations; (b) The consolidation of the assets of the constituent corporations will allow the procurement and financing and credit facilities under more favourable terms; and (c) The merger will make possible the more productive use of the properties of the constituent corporations. that the SEC had approved the Plan and Agreement of Merger and Articles of Merger, wherein NA Prime is merged into NAI, the surviving corporation; that NAI will not issue any shares of stock in consideration of the merger, considering that NA Prime is a wholly-owned subsidiary of NAI; that all the outstanding shares of NA Prime shall be deemed cancelled; that as NAI is the surviving corporation, NA Prime shall cease to exist and its legal personality is considered terminated; that upon the effective date of the merger, NAI is deemed to have acquired all the assets and assumed all the liabilities of NA Prime; that these assets were transferred at the net asset value as determined on the basis of NA Prime's audited financial statements as of June 30, 2010; that NAI shall become the owner of all the rights, assets, privileges and other properties of NA Prime and assumed all the debts and liabilities of the latter in the same manner as though NAI itself incurred such liabilities and obligations and any claim, action or proceeding against NA Prime shall be prosecuted by or against NAI; and that however, NAI may avail of all the defences, rights, privileges, set-offs and counterclaims which NA Prime may have under the premises. CADacT Based on the foregoing representations, you now request confirmation of your opinion that 1. The described merger of NA Prime into NAI is a tax-free merger under Section 40 (C) (2) of the Tax Code of 1997; 2. The transfer of assets by NA Prime to NAI pursuant to the merger is not subject to value-added tax (VAT) and any unused input tax of NA Prime, as of the effective date of the merger will be absorbed by NAI as the surviving corporation; 3. The transfer of assets of NA Prime, pursuant to the merger, is likewise not subject to donor's tax because there is no intention to donate on the part of the entities involved; 4. In the same manner, the transfer of assets of NA Prime is not subject to documentary stamp tax (DST) under Section 199 (m) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9243; 5. Likewise, the excess Creditable Withholding Tax (CWT) of NA Prime, as the absorbed corporation in a statutory merger, are transferred to and vested in NAI, as the surviving corporation, and may be utilized by the latter; and 6. Since the merger involves the parent company and its wholly-owned subsidiary, there will be no new shares issued, hence DST on original issuance of shares of stock will not apply. In reply thereto, please be informed that after a careful review of the above corporate re-organization, the intended re-organization is an upstream merger between a parent company (NAI) and its subsidiary (NA Prime), where the former will not be issuing any shares to NA Prime, in exchange for the assets to be transferred by NA Prime to NAI as a result of the merger. In effect, the said transfer partakes of the nature of a donation made by a subsidiary to its parent company, contrary to what is contemplated in Section 40 (C) (2) of the Tax Code of 1997, as amended. In the same manner, the intended merger has also the effect of dissolving and liquidating NA Prime without payment of the corresponding taxes. aEIADT Accordingly, this Office holds that your request is hereby DENIED for being devoid of legal basis. This ruling hereby REVOKES all previously issued rulings under the same set of facts and circumstances which are inconsistent herewith. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue