VAT Ruling No. 014-05

August 26, 2005 VAT RULING NO. 014-05 Glitter Spangle Enterprises, Inc . Penthouse I, Rio Suites 1048 Metropolitan Avenue Makati City Attention: Mr. Edgar M. Ortega President Gentlemen : This refers to your letter stated September 8, 2000 requesting that your corporation be granted exemption from the value added tax (VAT) in its adoption of a new corporate name from a single proprietorship called "Glitter Enterprises" to Glitter Spangle Enterprises, Inc. It is represented that the proprietor is one of the incorporators and holds the majority shares of the capital stock of the corporation; that the corporation is engaged in the retail of textiles, clothing, footwear and leather goods; that it was incorporated on March 3, 2000 per Certificate of Incorporation No. A200003414 duly issued by the Securities and Exchange Commission; that the incorporators of the new corporation are still the same owners, thereby no monetary transaction was involved; that the transfer of assets was not in the ordinary course of Glitter Enterprises' regular trade or business; and that the intended transfer of the assets are not for profit and livelihood. In reply, please be informed that your request is hereby granted. Paragraphs 1 and 3 of Section 4.100-5(b) of Revenue Regulations No. 7-95, implementing Sec. 106 of the Tax Code of 1997 (formerly Sec. 100 of the Tax Code of 1977) does not treat the change of control of a corporation by the acquisition of the controlling interest of such corporation by a stockholder, nor that of mergers or consolidations, as deemed sale transaction, thus "(b) Not subject to output tax . The VAT shall apply to goods or properties existing as of the occurrence of the following: "(1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders, Example: transfer of property to corporation in exchange for its shares of stock under Section 34(c) and (6)(c) of the Code. CSDTac "(2) Change in the trade or corporate name of the business; "(3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation as of the date of merger or consolidation shall be absorbed by the surviving or new corporation." Upon the incorporation of Glitter Spangle Enterprises, Inc., the owner of Glitter Enterprises transferred the assets of the latter in exchange for the shares of stock of the former thereby acquiring the controlling interest of that corporation. This scenario is in accord with the spirit of the tax-free transaction cited in sub-paragraph (1) above. Likewise, said transaction is also akin to VAT-exempt mergers or consolidations where the transferor gains control of the transferee. Moreover, when the Consolidated VAT regulations (RR 7-95) were issued implementing the Expanded VAT Law (RA 7716) effective January 1, 1996 and thereby amending the original VAT regulations (RR 5-87), the phrase " incorporation of the business in the case of single proprietorship " was deleted from among the transactions deemed sale. This ruling, which revokes VAT Rulings No. 451-88 and 009-93, are issued based on the foregoing facts as represented. If it will be disclosed upon investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue