ITAD Ruling No. 011-01

February 14, 2001 ITAD RULING NO. 011-01 Art. 13 RP-Netherlands 111-00; 166-00 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles Attorneys at Law 30th Floor, Citibank Tower, Citibank Plaza 8741 Paseo de Roxas, Makati City Attention: Atty . Priscilla B . Valer and Atty . Jayson L . Fernandez Gentlemen : This refers to your letter dated May 29, 2000 requesting confirmation that: (1) the transfer by Sandworth Plaza Holding B . V . ( Sandworth ) of its shares of stock in Cemex Strategic Philippines, Inc . ( Cemex Philippines ) to Cemex Pacific Investments B . V . ( Cemex Pacific ) and, subsequently, (2) the transfer by Cemex Pacific of the same shares of stock in Cemex Philippines to Cemex Manila Investments B . V . ( Cemex Manila ), are both not subject to capital gains tax imposed under Section 28(B)(5)(c) of the National Internal Revenue Code of 1997 ( Tax Code of 1997 ) pursuant to Article 13 (Gains From the Alienation of Property) of the RP-Netherlands Tax Treaty. It is represented that Sandworth, Cemex Pacific , and Cemex Manila are corporations organized and existing under the laws of the Netherlands with one principal office at Amsteldjik 166, 1079 LH Amsterdam, Netherlands; that Sandworth, Cemex Pacific , and Cemex Manila are not registered as corporations or partnerships licensed to do business in the Philippines as per certifications issued by the Securities and Exchange Commission dated May 3, 2000 (for Sandworth ) and May 4, 2000 (for Cemex Pacific and Cemex Manila ); that Cemex Philippines is a company organized and existing under the laws of the Philippines with principal office at 24th Floor, Petron Mega Plaza, 358 Sen. Gil J. Puyat Avenue, Makati City, Philippines; and that as of September 10, 1999, Sandworth (including its nominees) owns 65,000 shares of stock in Cemex Philippines, each stock with a par value of PHP100.00. First Transfer (Partial Demerger of Sandworth into Cemex Pacific and three other companies) : It is further represented that on September 10, 1999, in accordance with Article 334(a), paragraph 3, Book 2 of the Civil Code of the Netherlands, a Deed of Partial Demerger of Sandworth took effect whereby Sandworth (the demerging company which did not cease to exist on the partial demerger) transferred a part of its property, rights, interests and liabilities to: (1) Cemex Pacific Investments B . V . ( Cemex Pacific ), (2) Cemex Caribe Investments B . V ., (3) Cemex Caracas Investments B . V ., and (4) Cemex Global Investments B . V ., (the acquiring companies that were incorporated on the demerger), under a universal succession of title; that on June 30, 1999, in pursuance of the demerger, Sandworth assigned and transferred 65,000 of its shares of stock in Cemex Philippines to Cemex Pacific as the former's contribution to the latter's capital stock, and issued 200 shares of stock in Cemex Pacific to its sole shareholder Compagnia Valenciano de Cementos, S . A . (a company organized and existing under the laws of Spain with official seat at Hernandez de Tejada 1, 28027 Madrid, Spain), each stock with a par value of EUR100; Second Transfer (Merger of Cemex Pacific into Cemex Manila) : that on December 31, 1999, in accordance with Title 7, Book 2 of the Civil Code of the Netherlands, a Deed of Merger between Cemex Pacific and Cemex Manila took effect whereby Cemex Pacific (the company ceasing to exist on the merger) transferred all its assets and liabilities to Cemex Manila (the acquiring company on the merger) under a universal succession of title; that as a result of the merger, Cemex Pacific constructively assigned and transferred, among others, 65,000 of its shares of stock in Cemex Philippines to Cemex Manila . Based on the foregoing, it is your opinion that: (1) the transfer by Sandworth of its shares of stock in Cemex Philippines to Cemex Pacific pursuant to a partial demerger of Sandworth into Cemex Pacific and three other companies, and, subsequently, (2) the transfer by Cemex Pacific of the same shares of stock in Cemex Philippines to Cemex Manila pursuant to a merger of Cemex Pacific into Cemex Manila , are both not subject to capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997 pursuant to Article 13 of the RP-Netherlands Tax Treaty. On the first transfer, please be informed that paragraph 4, Article 13 (Gains from the Alienation of Property) of the RP-Netherlands Tax Treaty provides: "Article 13 GAINS FROM THE ALIENATION OF PROPERTY 1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the State in which such property is situated. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State, or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing professional services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. 3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of the States from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State. 4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall be taxable only in the State of which the alienator is a resident. xxx xxx xxx" According to paragraph 4 of the aforequoted Article, gains from the alienation of property other than: (a) immovable (real) property; (b) movable (personal) property forming part of the business property of a permanent establishment of an enterprise or of a fixed base used for performing professional services of an individual; and (c) ships and aircraft (and movable property related thereto), arising in the Philippines shall be taxable only in the Netherlands. Applying this, gains, if any, derived by Sandworth (including its nominees) from the assignment and transfer of 65,000 of its shares of stock in Cemex Philippines to Cemex Pacific , pursuant to a partial demerger of Sandworth into Cemex Pacific and three other companies, are exempt from capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997 . (BIR Ruling No. ITAD 111-00 dated August 28, 2000) cSIACD On the second transfer, please be informed that gains arising, if any, derived by Cemex Pacific on the transfer of the same shares of stock in Cemex Philippines to Cemex Manila pursuant to a merger of Cemex Pacific into Cemex Manila are in fact likewise exempt from capital gains tax pursuant to the above-cited paragraph 4, Article 13 of the RP-Netherlands Tax Treaty. (BIR Ruling No. ITAD 166-00 dated October 30, 2000) Although exempt from capital gains tax, both transfers, however, are subject to documentary stamp tax (DST) imposed under Section 176 of the Tax Code of 1997 which shall be computed at P1.50 on each P200.00 (or fractional part thereof) of the par value of Cemex Philippines' shares of stock. Finally, Section 201 of the Tax Code of 1997 provides that "[a]n instrument, document or paper which is required by law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall not be recorded . . ." Where the appropriate documentary stamp taxes thereon are paid to the Bureau of Internal Revenue, the Corporate Secretary of Cemex Philippines , upon presentation to him of the respective Certificates Authorizing Registration, is authorized to record in Cemex Philippines ' Stock and Transfer Book: (1) the transfer of Cemex Philippines ' shares of stock from Sandworth to Cemex Pacific , cancel old stock certificates issued to Sandworth , and issue new stock certificates in the name of Cemex Pacific ; and (2) the transfer of Cemex Philippines ' shares of stock from Cemex Pacific to Cemex Manila , cancel old stock certificates issued to Cemex Pacific , and issue new stock certificates in the name of Cemex Manila . This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group