Joint Rules and Regulations Implementing Articles 60, 61 and 144 of R.A. 9520

February 1, 2013 BIR RULING NO. 058-13 Strategic Alliance Development Corp. v. Radstock Securities Ltd. G.R. No. 178158; BIR Ruling No. 247-2012 Department of Finance Roxas Boulevard corner Pablo Ocampo, Sr. Street Manila Attention: John Phillip P. Sevilla Undersecretary, Department of Finance Gentlemen : This refers to your letter dated 2 October 2012 requesting issuance of a certificate authorizing registration ("CAR") for the transfer, in the name of the National Government, of the shares of stock held by the Philippine National Construction Corporation ("PNCC") in Citra Metro Manila Tollways Corporation (the "JV Company"). PNCC is a corporation organized and existing under Philippine law with principal place of business at Km. 15, East Service Road, Bicutan, Paraaque City. It is engaged in toll ways and construction business. On March 31, 1977, PNCC, through Presidential Decree ("PD") 1113, was granted a franchise to operate, construct and maintain toll facilities in the North and South Luzon Tollways. PD 1113 was later amended in 1983 by PD 1894 to include the Metro Manila Expressway. PNCC's franchise under PD 1113 for the North and South Luzon Expressways expired on May 1, 2007. In Strategic Alliance Development Corp. v. Radstock Securities Ltd. , 1 the Supreme Court held that "[w]ith the expiration of PNCC's franchise, the assets and facilities of PNCC were automatically turned over, by operation of law, to the government at no cost." Subsequently, in Francisco, Jr. v. Toll Regulatory Board, 2 the Supreme Court clarified that PNCC's participation in the construction, maintenance, and operation of the toll ways covered by its expired franchise are "limited to doing the same in trust for the National Government"; this participation includes PNCC's share/participation in the JVAs," which "likewise automatically accrue to the Government." Thus, the Supreme Court held: STaHIC "Considering, however, that all toll assets and facilities pertaining to PNCC pursuant to its P.D. 1113 franchise are deemed to have already been turned over to the National Government on May 1, 2007, whatever participation that PNCC may have in the new authorities to construct, maintain and operate the subject tollways, shall be limited to doing the same in trust for the National Government. In Radstock, the Court held that "[w]ith the expiration of PNCC's franchise, [its] assets and facilities . . . were automatically turned over, by operation of law, to the government at no cost." The Court went on further to state that the Government's ownership of PNCC's toll assets inevitably resulted in its owning too of the toll fees and the net income derived, after May 1, 2007, from the toll assets and facilities. But as We have earlier discussed, the tollways and toll facilities should remain functioning in accordance with the validly executed STOAs and TOCs. However, PNCC's assets and facilities, or, in short, its very share/participation in the JVAs and the STOAs, inclusive of its percentage share in the toll fees collected by the JV companies currently operating the tollways shall likewise automatically accrue to the Government." Pursuant to the above decisions of the Supreme Court, the PNCC's Board of Directors has resolved to execute a "Deed of Compliance to Transfer Shares of Stock to the National Government under the Supreme Court Decisions in G.R. Nos. 166910, 169917, 173630 and 183599" (the "Deed of Compliance") in favor of the Republic of the Philippines, for PNCC's shares of stock in the JV Company in order for the National Government to consolidate its title over the said shares. The particulars of the subject shares are as follows: Investee Company Shareholders Stock Certificate Number of Number Shares Citra Metro Manila PNCC 029 805,838 Tollways Corporation Citra Metro Manila PNCC 147 3 Tollways Corporation Citra Metro Manila PNCC 148 3 Tollways Corporation Citra Metro Manila PNCC 149 2 Tollways Corporation Citra Metro Manila PNCC 150 2 Tollways Corporation Citra Metro Manila PNCC 154 1 Tollways Corporation Citra Metro Manila PNCC 155 384,456 Tollways Corporation Citra Metro Manila PNCC 156 1 Tollways Corporation Citra Metro Manila PNCC 173 1 Tollways Corporation Citra Metro Manila PNCC 178 3,678,116 Tollways Corporation Citra Metro Manila PNCC 181 578,746 Tollways Corporation Citra Metro Manila PNCC 184 71,530 Tollways Corporation Total 5,518,699 ======== Based on the foregoing, you now request confirmation of the following: 1. The transfer in favor of the National Government of the shares of stock in the name of PNCC in the JV Company, without consideration, made by the trustee in favor of the beneficial owner thereof, is not subject to capital gains tax imposed under Section 27 (D) (2) of the Tax Code of 1997, as amended. DScTaC 2. The transfer of the shares of stock in the JV Company by PNCC, without consideration, as trustee in favor of the National Government, the beneficial owner, is not subject to donor's tax imposed under Section 98 of the Tax Code due to lack of donative intent on the part of the trustee; and 3. The transfer of the shares of stock in the JV Company by PNCC in favor of the National Government shall not be subject to documentary stamp tax (DST) imposed under Section 175 of the Tax Code. In reply, please be informed as follows: Capital Gains Tax Section 27 (D) (2) of the 1997 Tax Code, as amended, provides for the taxability of gains derived by a domestic corporation from the sale, exchange or other disposition of shares of stock not traded in the stock exchange, to wit: xxx xxx xxx "(2) Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange. A final tax at the rates prescribed below shall be imposed on net capital gains realized during the taxable year from the sale, exchange or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through the stock exchange: Not over P100,000 5% Amount in excess of P100,000 10%" xxx xxx xxx The above-cited provision does not apply in the instant case. There is no sale, barter or exchange of the shares of stock of the JV Company since the National Government, by virtue of the expiration of PNCC's franchise and by operation of law, has become the beneficial owner of the said shares, with PNCC acting merely as trustee thereof. Thus, the transfer of the shares of stock in the JV Company from PNCC, as trustee, to the National Government, as the beneficial owner, without any monetary consideration and made by virtue of the Deed of Compliance is not subject to capital gains tax. (BIR Ruling No. 247-2012 dated April 13, 2012) SaTAED Donor's Tax Section 98 of the Tax Code of 1997 provides that a donor's tax is generally imposed on the transfer by any person, resident or non-resident, of property by gift. The donor's tax applies, whether such transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. The essential elements of a valid donation are: (1) the reduction of the patrimony of the donor, (2) the increase in the patrimony of the donee, and (3) the intent to do an act of liberality (animus donandi) . In this case, there is no intention to donate on the part of PNCC as the transfer was made in compliance with the Supreme Court's decisions in Strategic Alliance Development Corp. v. Radstock Securities Ltd. and Francisco, Jr. v. Toll Regulatory Board where the beneficial ownership over the PNCC shares in the JV Company were held to have ipso facto reverted to the National Government by operation of PD 1113. The transfer of the legal title to the National Government is only a consolidation of its ownership over the said shares, and there is no donative intent or act of liberality involved on the part of PNCC. (BIR Ruling No. 247-2012 dated April 13, 2012) Documentary Stamp Tax The Deed of Compliance executed by PNCC in favor of the National Government to cause the transfer of the shares of stock in the JV Company to the latter is likewise not subject to documentary stamp tax imposed under Section 175 of the Tax Code of 1997, as amended, considering that there is no sale, agreement to sell or memorandum of sale, or delivery or transfer contemplated under Section 175 of the Tax Code. However, the notarial acknowledgement on the Deed of Compliance is subject to the documentary stamp tax under Section 188 of the same Code. (BIR Ruling No. 247-2012 dated April 13, 2012) This will, therefore, serve as authority for the concerned Revenue District Officer to issue the corresponding Certificate Authorizing Registration (CAR) so that the Corporate Secretary may now transfer the subject shares of stock in the name of the Republic of the Philippines in the Stock and Transfer Book as prescribed in Revenue Memorandum Order No. 66-99. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aESIHT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. G.R. No. 178158, 4 December 2009. 2. G.R. No. 166910, 19 October 2010.