BIR Ruling No. 318-2022

REPUBLICOF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE

Quezon City

Section 40(C2) and (6(b) of the BIR Ruling No. S40M-141-2021 Tax Code of 1997,as amended. S40M- JUN 2 9 2022 318-2022

Mall of Asia ComplexPasay City SM PRIME HOLDINGS,INC. Mall oi Asia Annex Arena Bldg. Coral Way cor.J.W.Diokno Bivd.

Attention: CECILIA PATRICIO Authorized representative

Gentlemen:

Inc.SM Prime), as the surviving corporation, and SM LandInc.SM Land), as the absorbed corporation, qualifies ns a tax free merger pursuant to Section 40(C)(2) in relation to Section 40C)6(bof the National Internal Revenue CodeTax Code of 1997,as amended This refers to your request for confirmation that the merger of SM Prime Holdings,

Background:

conducting the business of the corporation. It's shares of stock are listed and traded in the not limited to the conduct, operation and maintenance of shopping center spaces for rent. amusement centers, movie or cinema theaters within the compound or premises of the shopping centers andgenerally to buy, sell, acquire, mortgage, lease, exchange, assign, transfer, convey or otherwise alternate or dispose of any of its real and/or personal properties, and any interest or right therein, including shares of stocks of corporations r sofar as necessary or expedient in of the Philippines primarily to develop, conduct, operate and maintain the business of Philippine Stock ExchangePSE modernized commercial shopping centers and all the business appurtenant thereto such as, but SM Prime is a corporation duly organized and existing under the laws of the Republic

of the Republic of the Philippines primarily to acquire by purchase, exege, assigns, gift or otherwise and to operate, enjoy and dispose of, and all properties of every ki.d. On the other hand, SM Land is a corporation duly organized and existing under the laws

capitalize on strong economic fundamentals of the Philippines and Philippine property, respective meetings held on May 31,2013 and May 30,2013,at least a majority of the Board surviving corporation, in order to consolidate the real estate holdings of the companies owed and/or controlled by the Sy FamilySM Group,primarily toacreate a fully integrated real simplify corporate structure and increase organizational efficiencies; (c) establish the pre- consumer and tourism sectors; (e increase organizational cfficiencies and extract synergies; and (f strengthen the balance sheet providing enhanced capital raising flexibility. Thus, in their estate platform to further enhance the value of the SM Group's real estate businesses; (b eminent real estate company in the Philippines and Southeast Asia; (d) enhance ability to Directors and corresponding stockholders of SM Prime and SM Land deemed it desirable and advantageous to merge the two corporations into a single corporation, with SM Prime as the otherwise known as The Corporation Codef the Philippines the respective Boards of Pursuant to the provisions of Sections 76 to 80 of Batas Pambansa BP Blg.68

JUN 2 9 2022 SM PRIME HOLDINGS, INC.

each of the corporations, similarly approved the Plan of Merger. in their respective meetings held both on July 10,2013, the stockholders of SM Prime and Siv Land, respectively, representing at least two-thirds (2/3 of the outstanding capital stock of of Directors of SM Prime and of SM Land, respectively,approved the Plan of Merger.Als

issuance by the Securities and Exchange Commission (SEC ofa Certificate of Merger. capital stock of SM Prime to support the issuance of the shares of stock to the current shareholders of SM Land in exchange for their issued and outstanding shares of stock in SM Land. Also,under the Plan and Articles of Merger, the merger shall become effective upon the Pursuant to the Pian of Me ger, the merger shall requir an increase in the authorized

provided further that, all SM Development Corporation (SMD), and Highlands Prime, Inc. business in substantially the same manner as previously conducted, provided however, that SM Land shall be authorized to commence and/or complete the Share Tender Offer (STO), HPI shares obtained through the STO shall automatically form part of the assets of SM Prior to the effective date of merger, (i each corporation shall conduct their respective

Prime by operation of law; and (ii SM Land shall not declare any type of dividends.

its authorized capital stock to Php shares witi par value of Phpl.00 per share,in order to allow the ssuance of new shares in favor Effective Date),and the amendment of theArticles of Incorporation of SM Prime increasing On October 10,2013,the SEC approved both the Plan and Articles of Merger dividea into common

of the stockholders of SM Land as a reult of the merger._Subsequent thereto, the SEC also issued an Order in SEC CRMD Case No.13-502 dated November 29,2013,approving the Petition of SM Prime for the Amendment of the Plan of Merger.

Under the approved Amended Plan of Meer all the assets and properties of SM Land real or personal, tangible and intangible, and all receivables due on whatever account, including subscription to shares and choses in action, and all and every other interest of, belonging to, c. due to SM Land shall be deemed transferred to and vested in SM Prime without further act Gi deed. For avoidance of doubt, said assets shall include all shares of SMDC and HPI that will be acquired by SM Land pursuant to the STO.Likewise,all the liabilities and obligations of SM Land shall be transferred to and become the liabilities and obligations of SM Prime, in the same manner as if SM Prime had itself incurred such liabilitie and obligations, and in order that the rightsand interest of creditors of SM Land or Liens upon the property of SM Land shall not be impaired by the merger.

Upon the Effective Date of the merger,SM Prime shall issae a total of common shares at a par value of Phpl.00 in exchange for all the issued and outstanding stock of SM Land equivalent to the total net assets (including the val of the remaining outstanding shares of SM Prime after the STO of SM Land as of March 31,013(Cut-off Date.Likewise at the Effective Date of the merger, whatever assets or liabilinies assumed by SM Land after the Cut-off Date shall be transferred to SM Prime.

The assets, liabilities and equity of SM Land based on is Audited Financial Statements AFS)as of the Effective Date of the merger are summarized as follows:

Assets (in PhP) Amouat Liabilities Equity Amount (in PhP)

Total

Based on the foregoing representations, you now request for a ruling confirming that:

1. The merger between SM Prime and SM Land,with SIPrime as the surviving

corporation, is a merger wifin the contemplation bf Section 40(C2 in

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SM PRIME HOLDINGS, INC. JUN 2 9 2022

relation to Section 40C6b ofthe Tax Ccde of 1997, as amended Therefore, no gain or loss shall be recognized by SM Prime and SM Land on the transfer of all assets and as.umption of liabilities pursuant to the Plan of Merger for income tax purpose: :

2. The transfer of real properties and shares of stocks owned byand to SM

Prime pursuant to the merger is not subject to documentar -amp tax DST under the Tax Code of 1997,as amended

3. No DST shall be due on the surrend-f SM Larc shares for cancellation as

a result of the transfer of assets and assumption of liabilities by SM Prime;

4. The transfer of properties by SM Land to SM Prime shall not be subject to

donor's tax since there is no intention to donate On the part of SM Land and that the merger which was undertaken purely for legitimate business purposes:

5. The transfer of assets by SM Land to SM Prime pursuant to the merger is not

subject to value-added tax (VAT) and any unused input tax of SM Land as of the Effective Date of the merger shall be absorbed by SM Prime as the surviving corporation; and

6. SM Prime is entitled to carry forward and apply the excess and unutilized

creditable withholding taxes(CWT) attributable to SM Land as tax credit against its income tax due.

In reply thereto, please be informed as follows:

1. The merger of SM Prime and SM Land is a merger within the contemplation of Section 40(C2, in relation to Section 40(C)(6)(b of the Tax Code of 1997, as amended because SM Prime shall acquire/assume a! the assets and liabilities of SM Land and the same is desirable and advantageous in order to censolidate the realestate holdings of the companies owned nd/or controlled by SM Group,primarily to acreate a fully integrated real estate platform to further enhance the value of the SM Group's al estate busirusses;(bsimplify corporate structure and increase organizational efficiencies: (c) establish the pre-eminent real estate company in the Philippines and Southeast Asia; (d enhance ability to capitalize on strong economic fundamentals of the Philippines and Philippine property, consumer and tourism sectors;e increase organizational efficiencies and extract synergies; and strengthen the balance sheet providing enhanccd capital raising flexibility. Hence, the merger of SM Prime and SM Land is being undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation.

The merger of SM Prime anc SM Land qualifies for non-recognition of gain or loss for income tax purposes in accordance ith Section 40(C2 ofhe Tax Code of 1997,as amended and that no gain or loss shall be recognized by SM Land,as the transferor of all its assets and liabilities, to SM Prime pursuant to the Articles and Plan of Merger.

Accordingly, no gain or loss shall be recognized by SM Prime, as the transferee, on its receipt of the assets and liabilities cf SM Land pursuant to and a a consequence of the merger.

The basis of the shares of stocks to be received by shareholders of SM Land upon the exchange shall be the same as the basis of the properties,stocks or securities they exchanged. decreased by(l) the money they received,and2 the fair market value of the other property/ies they received and increased by (a) the amount treated as dividend of the shareholders and (b) the amount of any gain that was recognized in the exchangel.

Sec.40C5a of the Tax Code of 1997,s,arnended.

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SM PRIME HOLDINGS, INC. S40M- 3 18 - 2 0.2.2 JUN 2 9 2022

would be in the hands of SM Land increased by the amount of the gain, if any,recognized to the transferor on the transfer2. The basis of the property transferred in the hands of SM Prime shall be the same as it

property is subject 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 be3 If the amount of the liabilities assumed plus the amount of the liabilities to which the

strictly comply with the rule that cash and other cash items will be excluded from the whether liabilities assumed and to which the property is subject do not exceed the adjusted basis of the property transferred, pursuan to No.IV(A)(2)of Revenue Memorandum Ruling ("RMR") No. 2-2002 dated June 10, 2002 computation of the adjusted basis of the properties transferred for purposes of determining The substituted basis of the properties transferred by SM Land to SM Prime should

by SM Land based on its AFS as of the Effective Date of the merger shali be as follows: Accordingly,the allocated shares and the substitutecbasis of the poperties transferred

Assets Amount Allocated Liabilities Allocated Shares Substituted Basis Cash and cash equivalents Receivables Advances and other current assets Available for sale investments Investments in shares of stocks - cost Property and equipment - net Investment properties - net Net pension asset Other noncurrent assets

Total

Liabilities Amount

Accounts payable and other current liabilities Loans payable - net of current portion Deposits from tenants and others Loans payable - current portion

Deferred tax liabilities -net

Total

of 1997,as amended.Consequentlyno DST is a on the surrender by SMLana shareholders of their SM Land shares for cancellation. 199(m) of the Tax Code of 1997,as amended, in relation to Section 40(C2 of the Tax Code 2.No DST is due on the transfer of assets made pursuant to e merger under Section

at the rate of P1.00 on each P200 par value,or fractional part thereof, shall be imposed on the On the other hand,pursuant to Section 174 of the Tax Code of 1997,as amended,DST

2 Sec.40C)5(b),supra 3Sec.40C4b,supra 4 Old DST rate was used since the transaction touk place prior to Republic Act (RA) No. 10963.

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S40m- 318-2022 SM PRIME HOLDINGS, INC. JUN 2 9 2022

original issuance of shares by SM Prime in favor of the shareholie.s of SM Land as a conse..lence of the merger.

donation are:1 the reduction of the patrimony the donor2 the increase in the patrimony of the donee; and (3) the intent to do an act of iiberality (aninus donandi). 3. Well-settled in our jurisprudence is the fact thathe essential elements of a valid

and the transaction is a bona fide merger effected solely for business reasons. to donate to SM Prime its assets since the transaction is purely for a legitimate business purpose. Thus. the merger will not be subject to donor's tax since there is no intention to donate, Clearly, there is no intention on the part of any of the parties to the merger - SM Land

as the surviving corporation, pursuant to Section 4.106-8b3) of RR No.16-2005, as merger is not made in the course of business but by oper'atior of law pursuant to the merger. Thus, any unused input tax as of the Effective Date of merger shall be absorbed by SM Prime, amended. shall not be subject to any output tax, pursuant to Section 4.106-8 (b(3 of Revenue Regulations (RR No. 16-2005, as amended. The conveyance of properties to effectuate a 4. The transfer of properties of SM Land to SM Prirne as a consequence of the merger

being October 10,2013,and in the succeeding taxable years,or may be the subject of a claim for refund or issuance of a tax credit certifate TCC. corporation to SM Prime as a consequence of the merger,may be applied as a tax credit by SM Prime against its income tax due for the taxable year 2013.the Effective Date of the merger Effective Date of the merger, which form part of the assets to be transferred by the absorbed 5. The excess and unutilized CWT of the absorbed corporation, SM Land, as of the

reckoned from the date of payment of SM Land of its MCIT. regular corporate income tax of SM Prime subject to the three-year-carry-forward period the Tax Code of 1997,as amended.Since the excess and unexpired MCIT of SM Land are among the rights, privileges, property and/or in erest of SM Land, its excess and unexpired MCIT shall be transferred to and vested in SM Prime on the Efective Date of the merger.Thus, SM Land'sexcess and unexpired MCIT shall be carried forward and credited against he Prime,for the three (3 immediately succeeding taxable years pursuant to Section 27E)2 of absorbed corporation,SM Land,as of the Effective Date of the merger sna.i be carried forward and crdited against the regular corporate income tax due cf the surviving corporation, SM 6. The excess and unexpired Minimum Corporate Income Tax MCIT of the

transferred and absorbed by the surviving corporation, SM Prime, as this privilege or deduction can be availed of merely by the absorbed corporation. Accordingly, the tax-free merger does not cover the NOLCO of SM Land that can be transferred and absorbed by SM Prime. under Section 34(D)3) of the Tax Code of 1997,as amended.and as implemented by RR No. 14-2001, of the absorbed corporation, SM Land, if any, is not one of their assets that can be 7. It is to be emphasized, however, that the net operating loss carry-over NOLCO

under Section 40C2 and 6b of the Tax Code of 1997, as amended,the parties to the merger should comply with the following requirements set forth under RR No.18-2001 However, in order that the above-described reorganization can be considered as merger

A. The plan of reorganization should be adopted by each of the corporation. responsible officers and appearing upon the official records of the corporation. Each corporation, which is a party t the reorganization, shall file, as part of its return for the xable year within which the reorganization occurred a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization, including: parties thereto, the adoption being shown by the icts of its duly constituted

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L

UL3 SM PRIME HOLDINGS, INC. JUN 2 -9 2022

1. A copy of the plan of reorganization, together with a statement executed under the penalties of perjury,showing in full the purposes thereof and in detail all transactions incident to, or pursuant to the

plan

2 A complete statement of all cost or other 'basis of all property. including all stocks or securities, transferred incident to the plan

3 A statement of the amount of stock or securities and other property or money received from the exchange, including a statement of ail distribution of other disposition made thereof. The amount of each

on the basis of the fair market value thereof at the date of the kind of stock or securities and other property received shaii be stated

exchange;

4.A statement of the amount and ature of any liabilities assumed

upon the exchange, and the amount and nature of any liabilities to which any of the property acquired in the exchange is subject.

B. Every taxpayer, other than a corporation, party to the reorganization, who

received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in his income tax return for the taxable year in which the exchange takes place a complete statement of all facts pertinent to the non-recognition of gain or loss upon such exchange. including:

1 A statement of the cost or other basis of the stock or securities transferred in the exchange; and

2. A statement in full of the amount of stock or securities and other

property or money received from the exchange, including any liabilities assumed upon the exchange, and any liabilities to which property received is subject. The amount of each kind of stock or securities and other property (other liabilities assumed upon the exchange received shall be set forth upon the basis of the fair market value thereof at the date of the exchange.

C. Records in substantial form shall be kept by everyaxpayer who participates in a tax-free exchange in connection with a corporate reorganization

showing the cost or other basis of the transferred proper.y or money received (including any liabilities assumed on the exchange, or any liabilities to which any of the properties received were suoject),in order to facilitate the determination of gain or loss from subsequent disposition of such stock of securities and other pro gerty received from the exchange.

In addition to the foregoing requirements, the parties shall enclose with their respe t ve 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 parties shall include as a note to their respective AFS 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 asother transferee.

Moreover, the shareholders of the absorbed/dissolvir g corporation and the surviving/ transferee corporation shall record in their respective books he mandatory accounting entries stated in Annex Ahereof, pursuarit to Revenue Memorandum Order (RMO)No. 17-2016.

P

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SM PRIME HOLDINGS, IN JUN 2 9 2022

by the Register of Deeds or by the Corporate Secretary of this condition shall be penalized under Section 269 or 275,as the case maybe,of the Tax Coce of 1997,as amended. of Title TCT and Certificates of Stock,the date the merger 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 merger; provvided however, that any violation Furthermore, the parties shall cause to annotate at the back of the Transfer Certificutes

to the transaction must submit to the Law and Legislative Division, Bureau of Internal Revenue, certified true copies by the Corporate Secretaryoi duly annotated Certificates of Stock, in respect of the shares of stock of the transferee corporation, including the revised allocation of shares and re-computation of the substituted bases of the properties which shall be in accordance with RMR No. 2-2002. Finally, it is required that witnin ninety (90 days from receipt of this ruling, the parties

if upon investigation, it will be disclosed that the facts are c ifferent, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented. However

Very truly yours,

10eisoM

K- Commissioner of Internal Revenue CAESAR R.DULAY 052171

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Particulars (The entry/ies shall be per individual shar holder of Individual Shareholder's Boor the absorbed corporation) Transferee/Surviving Corporation's Book ANNEX "A"

Record the Tax Journal Entry to Free Exchange Investment in (transferee's name) investment in (name of dissolving corp.) Dividend Income net of FWT on dividend XXX.XX XXX.XX XXX.XX PPE-La& Improentfor real props. Investmen: in (issuing corp., for s*es of stock) Other Asets as applicable Addit onal Paid-In Capital Capital Stock Liabi hies MXXXXX XX.XX XXX.XX XXX.XX XXX.XX XXX.X

of (name of issuing corporation/s) with aggregate fair market value of transfereewith par value of P To record the Tax-Free Exchange of investment in (share type) shares in exchange for type and no. of share of name of per share. share type shares of (name of issuing corporation/s, and other assets assumed resulting from merger, in exchange for type and no. of share To record the Tax-Free Exchange of real properties, investment in with aggregate fair market value of p including liabilities

of (name of transferee with par value of p per share. Balance Sheet Notes Entry the date of exchange amounting to P Investment includes (no and type of share/s with par value of of investment in (no. and type of share/s of (issuing corporation/s) covered by Stock Certificate No/s total cost of (substituted basis and which have fair market value as of A in (name of transferee resulting from the Tax-Free Exchange which were acquired for the evidenced bylan of Merger and Articles of Merger, including the Real propries, investment in no. and type of share/s of (issuing corporation/s), and other assets were acquired through merger as increase of te Authorized Capital Stock of name of transferee properties, irivestment/s, and other assets were previously covered by by (issuing corporation/s) and are now presently covered by Stock approved by the Securities and Exchange Commission on date.The total acquisi ion cost/substituted cost to name of transferee of the investment's amounts to (FMV at the time of the exchange.The real Transfer Cr ificate of Title and Stock Certificate No/s. Certificate No/s. shares in the name of (name of transferee). constituting no. and type of share/s [total] issued

oforma Entries Sale/Transfer Subsequent to Record Cash or Accounts Receivables To record subsequent sale / transfer of investmert cquired thru tax- fres echange Current Investment in (name of transferee) Gin on Sale of Investment Tax Payable XX.X CXX.XX XX* XXX.XX XXX.XX To record sut sequent sale/transfe: oinvestment/s acquired thru tax. free exchange Current Cash or Accounts Receivables Investm t in (name of issuing corp. PPE-Land& Improvement/Other Assets Gain on Sle of Property/ies* Tax Pay ihle XXX.X XXX.XX XXX.XX XXX. X XXX.Xx

Provision for Tax as follows Provision forax as follows:

C Net Capital Gains Stock Transaction Tax Type Tax Tax: 10% on cxccs P100.000andGains realizced on tax-free uxchange Tax Rate* T/2 of 1% 5% on FMV of investment/s at the timc of the tax-fre excham Multiply by XXX.XX Op Net Capital Ge ns tockT Tax Type Tax Tax 6/10 of 1% Tax Rate* 15% Seling pricc of investment at the timc Gains realized on subscquent sale of of subscquent sale Multiply by inves tmcnt/s Amount XX.XX

if subscquent snle/s on investment/s was/were made before January 1,2018the tax rates ucd in thc computation of Net Capital Gains Tax and Stock Trans ction Tax at thc time of the tax-frce exchange shall apply. Stock Transaction t Capital Gains Tax Tax 6/10 of 1% Total Tax P 15% Sclling Gains realized Yan of subscquent salc investment/s I subscquent ale of XXX.XX KXX.XX Withholding fa1.5% to 6%per aluc-Addcd amp TaxS Tax Type Docur ONETT (VAT) RR No. 6-2001 1.5% for even PI,000 and ctional par Tax Rat tnereof) 12% Total Tax Payable propertyies at the time of subscquent Fair Marker Value (FMV) of the salc/transfer Multiply by Amoun x.x XXX.X XXX.XX XXXXX

Per RMO No.17-2016.the substituted basis of the stock or curitics reccivcd by the Computation of Gain Rcalized on Subscqucnt Sale of Investmen transferor on a tax-frcc cxchange shall be as follows:I Thorginal basis of the propertyStock or sccurities to be transferrcd:2Less:amoncy reccived.iny.and b as dividend of the sharcholder, if anyand b the amount of any gain that wa recogn the fair market valuce of the other proprty received. if any3)Plusathe ant trated on thcchange.if any Net Capital Gain on sale of unlistcd shares Selling Pricc Less: Cost (Substituted Basis) XXX.Xx XXX.X XXX.XX 117 FMV at the ti of subscquent sale/traner refers to th sling pric.zonal valuc or thc Gain on'sale valuc reflcted in the tax declaration, whichver is highest roperty/ics is subject to Normal Corporatc Incomc Tax (NCIT)