Platon Martinez Flores San Pedro & Leaño Law Offices

October 4, 2021 BIR RULING NO. OT-361-2021 Sec. 29, NIRC & RR 2-2001; BIR Ruling No. 435-19; BIR Ruling No. 094-2013; BIR Ruling 25-2002 Platon Martinez Flores San Pedro & Leao Law Offices 6th Floor Tuscan Building 114 V.A. Rufino Street Legaspi Village 1229 Makati City Attention: Atty. Anthony Brett M. Abenir Gentlemen : This refers to your letter dated March 19, 2018 requesting on behalf of your clients. Sandvik Philippines, Inc. (SANDVIK) and Sandvik Tamrock (Philippines), Inc. (SANDVIK TAMROCK) for confirmation that: 1) Fifty percent (50%) of the issued and outstanding capital stock of Sandvik is owned by more than twenty (20) individuals, thus SANDVIK cannot be considered a closely-held corporation but rather a publicly-held corporation exempt from the imposition of Improperly Accumulated Earnings Tax (IAET) under Section 29 of the National Internal Revenue Code of 1997, as amended. 2) Fifty percent (50%) of the issued and outstanding capital stock of Sandvik Tamrock is owned by more than twenty (20) individuals, thus SANDVIK TAMROCK cannot be considered a closely-held corporation but rather a publicly-held corporation exempt from IAET under Section 29 of the National Internal Revenue Code of 1997, as amended. Background 1. Sandvik (TIN: _____________) is a domestic corporation duly organized and existing under Philippine laws. Its primary purpose is "to engage in the marketing or general merchandising of Swedish quality steel and tungsten carbide products, finished or unfinished, and or any and all kinds of goods, wares and merchandise at wholesale." It is located at Unit 1004 One Global Place Building, 5th Avenue, cor. 25th Street, Bonifacio Global City, Taguig City, Metro Manila. Its authorized capital stock is PhP17,853,200.00 divided into 178,532 shares of stock with par value of PhP100.00 each. It is a foreign-owned subsidiary of Sandvik South East Asia Pte. Ltd. (Sandvik SEA) . 1 caITAC The following are the stockholders of record of SANDVIK: 2 Name No. of Shares Sandvik SEA 178,527 Kenneth Chan Keng Lek 1 Lim Jiun Horng, John 1 Jose Pacis Flores 1 Carlos G. Platon 1 Rosario P. Balatbat 1 Total 178,532 2. Sandvik Tamrock (TIN: _______________) is a domestic corporation duly organized and existing under Philippine laws. Its primary purpose is "to engage in trading, marketing, or general merchandising at wholesale, servicing or manufacturing of any and all kinds of equipment, goods, wares and merchandise." It is located at Unit 1004 One Global Place Building, 5th Avenue, cor. 25th Street, Bonifacio Global City, Taguig City. 3 Its authorized capital stock is Sixteen Million Pesos (PhP16,000,000.00) divided into One Hundred Sixty Thousand (160,000) shares of stock with par value of One Hundred Pesos (PhP100.00) each. It is a foreign-owned subsidiary of Sandvik Finance. 4 The following are the stockholders of record of Sandvik Tamrock: 5 Name No. of Shares Sandvik Finance 152,599 George Yap III 1 Jose Pacis Flores 1 Carlos G. Platon 1 Hector A. Martinez 1 Rosario P. Balatbat 1 Total 152,604 3. Sandvik SEA is a Singaporean company located at 50 ALPS Avenue #04-00 Sandvik Building, Singapore. It is authorized to engaged in general wholesale trade including importers and exporters and wholesale on a fee or contract basis. It is a wholly-owned subsidiary of Sandvik Finance B.V. (Sandvik Finance). Its capital structure are as follows: 6 Issued Share Capital Amount No. of Shares Currency Share Type 13,000,000 13,000,000 Singapore, Dollars Ordinary Paid-up Capital Amount Currency Share Type 13,000,000 Singapore, Dollars Ordinary Shareholders Name Nationality No. of Shares Currency Sandvik Finance Netherlands 13,000,000 Singapore, Dollars 4. Sandvik Finance is a corporation organized and existing in accordance with the laws of the Kingdom of the Netherlands with the official seat of the company in Schiedam, the Netherlands. The issued capital of the company is Eight Million Four Hundred Fifty-Four Thousand Six Hundred Euro (EUR8,454,600.00) comprising of Eighteen Thousand Four Hundred Eight (18,408) ordinary shares, having a nominal value of Four Hundred Fifty Euro (EUR450.00) each; and Three Hundred Eighty (380) Preferred Shares, having a nominal value of Four Hundred Fifty Euro (EUR450.00) each. 7 It is a wholly-owned subsidiary of Sandvik Aktiebolag (Sandvik AB), 8 to wit: Stockholders No. of Shares Subscribed with Par value of EUR450/Share % of Ownership Position Citizenship Sandvik AB 18,408 100% Regular shares Sweden Sandvik AB 380 100% Preference shares Sweden 5. Sandvik AB is registered as a public limited liability company in Sweden with registered office in Stockholm, Sweden. 9 Its largest stockholders 10 are as follows: 1. AB INDUSTRIV RDEN 11.8% 2. ALECTA PENSIONSFORS KRING, OMSESIDIGT 6.1% 3. AMF Forskring och Fonder 2.7% 4. Handelsbanken Pension 2.6% 5. Swedbank Robur fonder 2.5% 6. LUNDBERGFOREGATEN AB, L E 2.4% 7. SEB Investment Management 1.9% 8. JPM CHASE NA 1.8% 9. FJ RDE AP-FONDEN 1.4% 10. Nordea Investment Funds 1.4% 11. Goranssonska Stifelserna 1.3% 12. STATE STREET BK-WEST CLIENT/EXEMPT 1.2% 13. STATE STREET BK-WEST CLIENT/TREATY 1.1% 14. PENSIONKASSAN SHB FORSAKRINGSFORENING 1.0% 15. LIVFORS KRINGSBOLAGET SKANDIA 1.0% 16. CLEARSTREAM BANKING S.A., W81MY 0.9% 17. CBNY-NORGES BANK 0.9% cDHAES 18. STATE STREET BANK & TRUST COM., BOSTON 0.9% 19. Folksam 0.9% 20. CARL BENNET AB 0.8% 6. SANDVIK and SANDVIK TAMROCK have no pending tax audit case. 11 In reply, please be informed that Section 29 (B) of the Tax Code of 1997, as amended, and as implemented by RR No. 2-2001, provides that in addition to other taxes imposed by Title II of the Tax Code of 1997, as amended, there shall be imposed for each taxable year a tax equal to 10% of the improperly accumulated taxable income of corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders. Thus, this Office held in BIR Ruling No. 435-19 dated August 2, 2019: "In reply thereto, please be informed that Section 29 (A) and (B) (2) (a) of the Tax Code on the imposition of IAET, states that SEC. 29. Imposition of Improperly Accumulated Earnings Tax . (A) In General. In addition to other taxes imposed by this Title, there is hereby imposed for each taxable year on the improperly accumulated taxable income of each corporation described in Subsection B hereof, an improperly accumulated earnings tax equal to ten percent (10%) of the improperly accumulated taxable income. (B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. (1) In General. The improperly accumulated earnings tax imposed in the preceding section shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. (2) Exceptions. The improperly accumulated earnings tax as provided for under this Section shall not apply to: (a) Publicly-held corporations; (b) Banks and other non-bank financial intermediaries; and (c) Insurance companies. This kind of tax is being imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings, and as a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them by the corporation. However, the IAET shall not apply to, among others, publicly-held corporations. Furthermore, Section 4 of Revenue Regulations No. 2-2001, 'Implementing the Provision on Improperly Accumulated Earnings Tax under Section 29 of the Tax Code of 1997,' provides: For purposes of these Regulations, closely-held corporations are those corporations 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. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations. ASEcHI For purposes of determining whether the corporation is a closely-held corporation, it is provided that 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." Stated differently, to be a publicly-held corporation, it is essential that 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 more than twenty (20) individuals. (Section 4, RR No. 2-2001) This Office had occasion to rule that the ownership of a domestic corporation for purposes of determining whether it is a closely-held corporation or a publicly-held corporation is ultimately traced to the individual shareholders of the parent company. Accordingly, where at least 50% of the outstanding capital or at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at least 21 or more individuals, the corporation is considered a publicly-held corporation as the term is defined in RR No. 2-2001. (BIR Ruling No. 25-2002 dated June 25, 2002 and BIR Ruling No. 094-2013 dated March 18, 2013) A perusal of the General Information Sheets (GIS) will show that SANDVIK is a domestic corporation which is 99.99% owned by Sandvik SEA which is a wholly-owned subsidiary of Sandvik Finance which, in turn, is a wholly-owned subsidiary of Sandvik AB. On the other hand, the GIS of SANDVIK TAMROCK will show that it is a domestic corporation which is 99.99% owned by Sandvik Finance which is a wholly-owned subsidiary of Sandvik AB. Therefore, the ownership of SANDVIK and SANDVIK TAMROCK for purposes of determining whether these are closely-held corporations or publicly-held corporations is ultimately traced to the individual shareholders of Sandvik AB, the ultimate parent-company of both SANDVIK and SANDVIK TAMROCK. Sandvik AB is a publicly listed company in Sweden. At least fifty percent (50%) of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by twenty-one (21) or more individuals. 12 Applying the above-cited test under Section 4 of RR 2-2001, SANDVIK and SANDVIK TAMROCK are publicly held corporations as contemplated under Section 29 (B) of the Tax Code of 1997, as amended, considering that: 1) Sandvik SEA owns 99.99% of the shares of SANDVIK; 2) Sandvik Finance owns 99.99% of the shares of SANDVIK TAMROCK; and 3) the ownership of Sandvik SEA and Sandvik Finance is ultimately traced to Sandvik AB, a corporation where at least fifty percent (50%) of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by more than twenty (20) individuals. IN VIEW OF THE FOREGOING, this Office confirms your opinion that SANDVIK and SANDVIK TAMROCK are publicly held corporations exempt from the imposition of IAET under Section 29 (B) (2) (a) of the Tax Code of 1997, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. ITAaHc Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. 2017 General Information Sheet (GIS) of Sandvik. 2. 2017 General Information Sheet (GIS) of Sandvik. 3. Amended Articles of Incorporation of Sandvik Tamrock. 4. 2017 GIS of Sandvik Tamrock. 5. Corporate Secretary's Certificate issued by Atty. Hector A. Martinez dated 22 February 2018. 6. Authenticated Business Profile of Sandvik SEA extracted from lodgements filed with the Accounting and Corporate Regulatory Authority in Singapore. 7. Authenticated Amendment to the Articles of Incorporation of Sandvik B.V. dated 1 July 2016. 8. Authenticated Certificate issued by Peter Weber and Malika Algafafi. 9. Authenticated e-Certificate of Registration of Sandvik Aktiebolag with the Swedish Companies Registration Office. 10. Authenticated Euroclear Snapshot for Sandvik AB. 11. Certification from RDO 44, Taguig-Pateros dated July 6, 2020. 12. Authenticated Euroclear Snapshot of Sandvik AB for 2017.