Atty. Vicente del Rosario

May 7, 1980 Atty. Vicente del Rosario Rosadel Building 1011 Metropolitan Avenue Makati, Metro Manila Dear Atty. del Rosario: This is to formally acknowledge receipt of your letter-inquiry dated January 22, 1980 requesting confirmation on the proposed intention of your client, the Philippine Cocoa Corporation (PCC) to declare stock dividends on the capital gains which it will derive by way of liquidating dividends received upon the liquidation of X Corporation where it has equity investments. llcd According to your letter, PCC purchased stocks of X Corporation from their former stockholders at different times at a cost of P23M; that said stocks are therefore carried in the books of PCC as investments at said acquisition cost; that sometime this year (1980), the stockholders of X Corporation intend to dissolve the same and distribute all its assets by way of liquidating dividends to its stockholders including the PCC; that PCC will receive liquidating dividends assets with an estimated market value of P35M based on the appraisal of Asian Appraisers, Inc. and therefore, it will derive capital gains in the amount of P12M; that the BIR ruling exempts the P12M profit from capital gains tax and subjects it only to the stock transaction tax (1/4 of 1% tax); and that upon actual liquidation of X Corporation, PCC will book a profit of P12M. Based on the foregoing facts, you wish to know whether or not the excess liquidating dividends of P12M over the cost of the equity investments mentioned above which shall be taken up as gains in the books of PCC, could be validly declared as stock dividends by PCC. It appearing that there will be an actual disposition of investments in exchange of which Philippine Cocoa Corporation will receive properties worth more than the cost of the investments to be disposed of, the excess or gain of P12M is considered realized income of PCC and as such, could therefore, be validly declared both as cash and stock dividends. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Director Corporate and Legal Department