March 29, 2012

BIR RULING NO. 228-12

RMR 01-01; Section 40 (C) (2) (6)

(c) 1997 NIRC

Corbro Development Corporation

UM Seno & Burgos Streets, Barangay Alang-Alang
Mandaue City, Cebu

Attention: Atty. Licinius M. Abadiano

Gentlemen :

This refers to your letter dated November 17, 2009 requesting for a ruling
that no gain or loss shall be recognized on the transfer by Spouses Zoilo M. Cortes,
Jr. (TIN 143-406-590-000) and Editha F. Cortes (TIN 130-738-883-000 and
hereinafter referred to as the Assignors) of their real properties including
improvements therein to Corbro Development Corporation (Corbro) in exchange
for the latter's shares of stock in accordance with Revenue Regulations (RR) No.
18-2001 and falling under Section 40 (C) (2) and (6) (C) of the Tax Code of 1997,
as amended. HCTEDa

Documents submitted show that Corbro is a newly incorporated domestic

corporation duly registered with the Securities and Exchange Commission (SEC)
with SEC Company Registration No. CS200931408 dated November 4, 2009; that
Corbro has an authorized capital stock of Forty Million Pesos (P40,000,000.00)
divided into Four Hundred Thousand (400,000) shares with a par value of One
Hundred Pesos (P100.00) per share; that its incorporators with their corresponding
shares subscribed and paid-up are as follows:

No. of Amount Subscribed Amount Paid

Name Shares (in Pesos) (in Pesos)

Zoilo M. Cortes, Jr. 49,600 4,960,000.00 2,200,521.67

Editha F. Cortes 49,600 4,960,000.00 2,200,521.66
Kristian F. Cortes 200 20,000.00 5,000.00
Jonathan Carlo F. Cortes 200 20,000.00 5,000.00
Zoilo III F. Cortes 200 20,000.00 5,000.00
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 1
 Anton F. Cortes 200 20,000.00 5,000.00
–––––– –––––––––––– ––––––––––––
Total 100,000 10,000,000.00 4,421,043.33
====== =========== ===========

* The amount of P478.35 paid in cash each by Zoilo Jr. and Editha Cortes are not
reflected in the above matrix since the property contemplated in tax-free exchanges
excludes cash. (No. IV.1 of Revenue Memorandum Ruling No. 01-01 dated November
29, 2001)

that the Assignors are the registered owners of the land and improvements,
described as follows:

Type of CCT No./TCT No./ Fair Market Value Historical Cost

Property Tax Declaration (in Php) (in Php)
(TD) No.

Condominium Unit 27768/E-023-00618 805,600.00 0.00

Land 21747/2006-001-02975 5,406,000.00 2,500.00
Land 34975/2006-013-02208 5,107,500.00 700,000.00
Land 52256/2006-014-01736 990,000.00 362,637.00
Land 52257/2006-014-01735 375,000.00 137,363.00
Land 39155/2006-008-00122 1,641,500.00 100,000.00
Building 2006-006-00262 141,790.00 0.00
Building 2006-016-02171 1,344,460.00 0.00
Building 2006-001-02979 491,760.00 0.00
Building 2006-013-02667 868,740.00 540,640.00
Building 2006-013-02668 496,810.00 232,000.00
–––––––––––– –––––––––––
Total 17,669,160.00 2,075,140.00
=========== ==========

that on September 23, 2009, a Deed of Assignment was executed by the Assignors
in favor of Corbro, whereby the former transferred to the latter the title and
ownership over their above-described properties in exchange for and as payment of
their subscriptions, to wit:

Name No. of Shares Subscribed

Zoilo M. Cortes, Jr. 49,600

Editha F. Cortes 49,600
––––––
Total 99,200
=====

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 2

and that as a result of the above transfer, the Assignors gained control of Corbro by
owning 98.21% of the total voting stocks of the said corporation.

In reply thereto, please be informed that pursuant to Section 40 (C) (2) and
(6) (c) of the Tax Code of 1997, as amended, no gain or loss shall be recognized if
property is transferred to a corporation by a person, in exchange for stock in such a
corporation of which as a result of such exchange, said person, alone or together
with others, not exceeding four persons, gains control of said corporation. The
term "control" shall mean ownership of stocks in a corporation possessing at least
51% of the total voting power of all classes of stocks entitled to vote. Control is
determined by the amount of stocks received i.e., total subscribed by the
transferors. In determining the 51% stock ownership, only those persons who
transferred property for stocks in the same transaction may be counted up to a
maximum of five.

Accordingly, no gain or loss shall be recognized on the transfer by Spouses

Zoilo M. Cortes, Jr. and Editha F. Cortes of their properties in exchange for shares
of stock of the transferee corporation, Corbro, considering that as a consequence of
the exchange, they gained control of the transferee corporation by owning more
than 98.21% of its total voting stocks.

While it appears that TCT Nos. 52256 and 52257 are the exclusive
properties of Zoilo M. Cortes, Jr., the Deed of Assignment, however, would show
that the spouses equally received shares of stock in exchange for the properties
transferred, and as such should be subject to donor's tax imposed under Section 98
of the Tax Code of 1997, as amended. ESCTaA

Furthermore, the corresponding shares allocated to each of the properties

transferred and the substituted bases thereof are as follows:

Name of Type of No. of Shares Substituted

Transferor/s Property Allocated Basis

Zoilo M. Cortes, Jr. Condominium Unit 2,261 0.00

Land 15,175 1,250.00
Land 14,338 350,000.00
Land 2,779 181,318.50
Land 1,053 68,681.50
Land 4,608 50,000.00
Building 398 0.00
Building 3,774 0.00
Building 1,380 0.00
Building 2,439 270,320.00

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 Building 1,395 116,000.00
–––––– –––––––––––
Sub-Total 49,600 1,037,570.00
–––––– –––––––––––
Editha F. Cortes Condominium Unit 2,261 0.00
Land 15,175 1,250.00
Land 14,338 350,000.00
Land 2,779 181,318.50
Land 1,053 68,681.50
Land 4,608 50,000.00
Building 398 0.00
Building 3,774 0.00
Building 1,380 0.00
Building 2,439 270,320.00
Building 1,395 116,000.00
–––––– –––––––––––
Sub-Total 49,600 1,037,570.00
–––––– –––––––––––
Grand Total 99,200 2,075,140.00
====== ==========

It should be emphasized, then that Section 40 (C) (2) and (6) (c) of the Tax
Code of 1997 merely defers recognition of the gain or loss from such transaction,
for in determining the gain or loss from a subsequent transaction of the real
properties or of the stocks involved in the exchange, the original or historical cost
of the properties or stocks is considered. Thus, if any of the Assignors/Assignee
later sell or exchange, they shall be subject to income tax/capital gains tax, as the
case may be, on the gains they derived from such sale or exchange, taking into
consideration that the cost basis of the shares/real properties shall be the same as
the original acquisition cost or adjudged cost basis to the transferee of the
properties exchanged therefor; and that the cost basis to the transferee of the
properties exchanged for stocks shall be the same as it would be in the hands of the
transferors. [Sec. 40 (C) (5) (a) and (b) of the Tax Code of 1997]

It is to be noted that under RR 10-2011 dated July 1, 2011, the exchange of

goods or properties, including the real estate properties used in business or held for
sale or for lease by the transferor for shares of stock, whether resulting in corporate
control or not is subject to value-added tax (VAT). In the herein case, the transfer
of TCT No. 34975 together with the commercial building and warehouse existing
thereon, the restaurant building on Lot 246-B-2 located at A.C. Cortes and Plaridel
Sts., Cambaro, Mandaue City and apartment building on Lot 431-B at Mabini St.,
Looc, Mandaue City by Sps. Cortes to Corbro is subject to VAT because the

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 4

aforesaid properties are held by the Assignors primarily for lease in the ordinary
course of business.

Moreover, you are further advised that in order that the parties to the
exchange transaction can avail of the non-recognition of gains provided for in
Section 40 (C) (2) and (6) (c) of the Tax Code of 1997, they should comply with
the requirements hereunder:

A. The transferors must file with their income tax return for the
taxable year in which the exchange transaction was
consummated, a complete statement of all facts pertinent to the
exchange, including:

1. A description of the property they transferred, or of their

interest in such property, with a statement of the original
acquisition cost/adjusted cost basis or other basis thereof
at the time of the transfer;

2. The kinds of stocks received and preferences, if any;

3. The number of shares of each class received; and

4. The fair market value per share of each class at the date
of the exchange.

B. On the other hand, the transferee corporation must file with its
income tax return for the taxable year in which the exchange
was consummated the following:

1. A complete description of the property received from the

transferors;

2. A statement of the original acquisition cost or other basis

of the property in the hands of the transferors and the
adjusted cost basis thereof at the time of the transfer; and

3. Information with respect to the capital stock of the

corporation including:

a. The total issued and outstanding capital stock

immediately prior to and immediately after the
exchange with a complete description of each
class of stock;

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 5

 b. The classes of stocks and number of shares issued
to the transferors in the exchange; and

c. The fair market value as of the date of the

exchange of the capital stock issued to the
transferors. DcITHE

In addition to the foregoing requirements, the parties shall enclose with

their respective income tax returns for the taxable year in which the tax-free
exchange occurred a copy of the request for ruling filed with, and the
corresponding ruling issued by the Bureau of Internal Revenue, both duly stamped
received by the appropriate office of the Bureau of Internal Revenue. Such persons
shall include as a note to their respective audited financial statements for the
taxable year in which the exchange occurred a statement to the effect that they hold
such assets/shares acquired in a tax free exchange and the year in which such
exchange occurred, and in the taxable years until the subject properties are
subsequently transferred to another transferee.

The parties shall, pursuant to Section 58 (E) of the Tax Code of 1997, also
cause the Register of Deeds to annotate on the Transfer Certificates of Title and/or
the Corporate Secretary to annotate at the back of the Certificates of Stock, the
date the deed of exchange was executed, the original or historical cost of
acquisition of the properties or shares of stock involved, and the fact that no gain
or loss was recognized as a result of such exchange; provided however, that any
violation by the Register of Deeds of this condition shall be penalized under
Section 269 of the Code. It is further required that within ninety (90) days from
receipt of this ruling, the parties to the transaction must submit to the Law
Division, Bureau of Internal Revenue, a certified true copy/ies by the Register of
Deeds or Corporate Secretary, as the case may be, of duly annotated Transfer
Certificates of Stock, in respect of the transferred properties and shares of stock of
transferee corporation.

The fair market value and the zonal valuation as stated above shall be
subject to verification by the RDO concerned.

Pursuant to Section 196 of the Tax Code of 1997, as amended, a

conveyance or deed whereby land is assigned or transferred to another person is
subject to documentary stamp tax based on the consideration or value received or
contracted to be paid for such realty or on its fair market value determined in
accordance with Section 6 (E) of the same Code, whichever is higher. However,
under Republic Act (RA) No. 9243 which took effect on March 20, 2004, transfer
of property pursuant to Section 40 (C) (2) of the 1997 Tax Code, as amended, is

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 6

now exempt from the payment of documentary stamp tax (DST) under Section 196
of the Tax Code of 1997. Accordingly, the transfer by the Assignors of their real
properties to Corbro, as in this case, is not subject to DST under said section.

Finally, the shares to be issued by Corbro are original issues subject to the
documentary stamp tax imposed by Section 175 (now Section 174) of the Tax
Code of 1997, as amended by RA No. 9243, which shall attach upon acceptance by
the corporation of the stockholder's subscription regardless of the actual delivery
of the certificates of stock.

This Office reiterates that the conveyance by Zoilo M. Cortes, Jr. to Editha
F. Cortes of his share in TCT Nos. 52256 and 52257 is subject to donor's tax
pursuant to Section 98 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, and/or any of the requirements imposed in this letter are not complied
with, then this ruling shall be considered as null and void. HCETDS

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

April 19, 1999

BIR RULING NO. 053-99

40 (C) (2)-172-98-053-99

SGV & Co.

6760 Ayala Avenue
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 7
1226 Makati City

Attention: Mr. Joel L. Tan Torres

Tax Division

Gentlemen :

This refers to your letter dated October 27, 1998 requesting on behalf of
your client, SUN LIFE ASSURANCE COMPANY OF CANADA (SLAC), for a
ruling that no gain or loss shall be recognized on the transfer of its branch business
in the Philippines to a domestic corporation ("Philco"), in exchange for shares of
stock of the latter, since, as a consequence of the exchange, SLAC gains control of
Philco. LibLex

It is represented that SLAC is a mutual life insurance company organized

and existing under the laws of Canada; that it was originally incorporated as a
corporation with share capital by Special Act of Parliament in 1865, but was
converted into a mutual company in 1962; that its Special Act was replaced in
1992 by letters patent issued under the Canadian Insurance Companies Act (the
"ICA"); that SLAC carries on insurance business in Canada and internationally
through branches, mainly in the United States, the United Kingdom, the
Philippines and HongKong; that SLAC has been doing business in the Philippines
through its branch office since 1895; that Philco is a domestic corporation which
will be organized and registered with the Securities and Exchange Commission;
that SLAC is currently undergoing a worldwide business reorganization, otherwise
known as a "demutualization"; that a "demutualization" is a transaction or a series
of transactions by which a mutual life insurance company converts into a stock
corporation; that as part of its demutualization process, SLAC will establish
CanHoldCo, a wholly owned holding company organized under the laws of
Canada; that the creation of CanHoldCo will result in the optimal corporate
structure for the Sun Life group of companies because it affords the greatest
on-going flexibility for future financing which can be done through CanHoldCo or
SLAC; that for these and other reasons, most major demutualization that have
occurred in the United States and the United Kingdom involved holding
companies; that as part of its business reorganization, SLAC shall transfer its
Philippine branch business including all assets to Philco in consideration for
Philco's assumption of all branch liabilities and its issuance of approximately
99.99% of its capital stock; that PhilCo's real property interest does not exceed
50% of its total assets; and that in connection with the ongoing reorganization,
SLAC will transfer the shares in PhilCo that it will receive to BVCo, a Netherlands
subsidiary of SLAC.

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 8

 In connection therewith, you now request confirmation of the following:

1. No gain or loss shall be recognized both on the part of SLAC,

the transferor, and Philco, the transferee, on the transfer by
SLAC of its Philippine branch business in exchange for shares
of stock in Philco, considering that after exchange and as a
result thereof, SLAC will gain control of Philco, the transferee,
in accordance with Section 40(C)(2) of the Tax Code;

2. The basis of the property transferred by SLAC in the hands of

Philco shall be the same as the basis in the hands of SLAC;

3. The basis of the Philco shares in the hands of SLAC shall be the
same as the basis of the property transferred to Philco;

4. SLAC shall not be considered to have withdrawn the remittable

profits of its Philippine Branch when the same are transferred to
Philco and therefore the 15% Branch Profits Remittance Tax
(BPRT) on remittable profits of SLAC as of the date of transfer
of its Philippine branch business to Philco shall not be imposed;

5. The transfer of assets of the Philippine branch to Philco shall

not be subject to the 10% Value Added Tax pursuant to Section
4.100-5(b) of Revenue Regulations No. 7-95, as amended;

6. The transfer of Philco shares by SLAC to BVCo is exempt from

Philippine income tax pursuant to Article 13(3) and (4) of the
RP-Canada Tax Treaty;

7. Considering that the transfer of Philco shares will be made to

BVCo, a wholly owned subsidiary of SLAC, there is no transfer
of Philco shares to an unrelated third party. Therefore, the
transfer of Philco shares to BVCo should not result in the 15%
BPRT;

8. The transfer of its investments in shares of stock in domestic

corporations by SLAC to Philco shall be subject to documentary
stamp tax (DST) pursuant to Section 176 of the Tax Code.

9. The transfer of any real property by SLAC to Philco shall be

subject to DST pursuant to Section 196 of the Tax Code;

10. The issuance of shares of stock by Philo to SLAC shall be

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 9

 subject to DST under Section 175 of the Tax Code; and

11. Finally, the transfer by SLAC of Philco shares to BVCo shall be

subject to DST under Section 176 of the Tax Code.

In reply, please be informed of the following:

Section 40(C)(2) and (6)(c) of the Tax Code provides that no gain or loss
shall be recognized if property is transferred to a corporation by a person in
exchange for stock in such corporation of which as a result of such exchange, said
person, alone or together with others, not exceeding four persons, gains control of
said corporation. The term "control" shall mean ownership of stocks in a
corporation possessing at least fifty-one percent of the total voting power of all
classes of stock entitled to vote. Considering that SLAC shall gain control of
Philco as a result of the exchange by owning approximately 99.99% of Philco's
capital stock, no gain or loss shall be recognized in the transfer of its branch
business consisting of assets and liabilities in exchange for Philco shares (BIR
Ruling No. 210-91). Moreover, the basis of the property transferred by SLAC in
the hands of Philco shall be the same as its basis in the hands of SLAC and that the
basis of the Philco shares in the hands of SLAC shall be the same as the basis of
the property transferred to Philco. LLjur

If pursuant to the exchange transaction and as part of the consideration, the

transferee corporation assumes the liability of the transferor or acquires from the
transferor property subject to a liability, such assumed or acquired liability shall
not be treated as money and/or other property, and shall not prevent the exchange
from being tax free (see Sec. 34(c)(4)(a) of the Tax Code, as amended by P.D.
1773). If the amount of the liabilities assumed, plus the amount of the liabilities to
which the property is subject to a liability, exceed the total of the adjusted basis of
the property transferred pursuant to such exchange, then such excess shall be
considered as a gain from the sale or exchange of a capital asset or of property
which is not a capital asset as the case may be. (Sec. 40 (c)(4)(b) of the Tax Code
of 1997).

The cost basis or value of the stocks received by the transferor of property
subject to a liability, where the liability transferred and assumed by the transferee
corporation does not exceed the transferor's basis of the original and/or acquisition
cost or the property transferred, shall be the difference between the liability or
liabilities assumed by the transferee corporation and the acquisition or original cost
of the property transferred. On the other hand, where the total liabilities to be
assumed by the transferee corporation exceed the original or acquisition cost of the
property transferred, the excess shall be recognized as gain to the transferor and
the value or cost basis of the stocks to the transferor shall be the difference
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 10
between the original cost of the property transferred subject to a liability (plus the
gain recognized to the transferor and the liability or liabilities assumed by the
transferee corporation).

SLAC shall not considered to have withdrawn the remittable profits of its
Philippine Branch when the same are transferred to Philco. The 15% Branch
Profits Remittance Tax (BPRT) under Section 28(A)(5) of the Tax Code of 1997,
on remittable profits of SLAC as of the date of transfer of its Philippine branch
business to Philco, shall not be imposed because there is effectively no withdrawal
of profits by SLAC from the Philippines. cdlex

Further, the insurance business of SLAC in the Philippines will continue to

be maintained by Philco and that the funds and capital of SLAC's Philippine
branch will not be remitted outside the Philippines. However, the BPRT shall be
payable upon transfer of Philco shares in a taxable sale or other disposition to an
unrelated third party. For this purpose, the liability to pay the BPRT shall be
annotated on the pertinent certificate of stock as well as the Stock and Transfer
Book of Philco. The BPRT shall likewise be payable when Philco is liquidated.

The transfer of assets of the Philippine branch to Philco shall not be subject
to the 10% Value Added Tax pursuant to Section 4.100-5(b) of Revenue
Regulations No. 7-95, as amended which provides:

"(b) Not subject to output tax. — The VAT shall not apply to goods
or properties existing as of the occurrence of the following:

"1) Change of control of a corporation by the acquisition of

a controlling interest of such corporation by another stockholder or
group of stockholders, Example: transfer of property to a corporation
for its shares of stock under Section 34(c)(2) and 6(c) of the Code."

The transfer of Philco shares by SLAC to BVCo shall not be subject to

Philippine income or capital gains tax pursuant to Article 13(3) and (4) of the
RP-Canada Tax Treaty which provides that gains from the alienation of shares of a
company, the property of which consists principally of immovable property
situated in a Contracting State, may be taxed in the State.

Section 2 of Revenue Regulations No. 4-86 defines the term "wholly" or

"principally" as more than 50% of the entire assets in terms of value. Thus,
considering that PhilCo's real property interest in the Philippines will consist of
less than 50% of its total assets then, PhilCo is exempt from Philippines. (BIR
Ruling No. 175-97). In which case, the transfer of Philco shares by SLAC to
BVCo is exempt from Philippine income tax pursuant to Article 13(3) of the
RP-Canada Tax treaty. Moreover, considering that the transfer of Philco shares
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 11
will be made to BVCo, a wholly owned subsidiary of SLAC, there is no transfer of
Philco shares to an unrelated third party. Therefore, the transfer of Philco shares to
BVCo should not result in the 15% BPRT. LLpr

Also, the transfer of its investments in shares of stock in domestic

corporations by SLAC to Philco shall be subject to documentary stamp tax (DST)
pursuant to Section 176 of the Tax Code. Likewise, the transfer of any real
property by SLAC to Philco shall be subject to DST pursuant to Section 196 of the
Tax Code based on the consideration or the fair market value, whichever is higher.
The issuance of shares of stock by Philco to SLAC shall be subject to DST under
Section 175 of the Tax Code. Finally, the transfer by SLAC of Philco shares to
BVCo shall be subject to DST under Section 176 of the Tax Code.

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.

Very truly yours,

(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 12