BIR Ruling No. 351-2021

REPUBLICOF FHE PHHLIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sec.40(C)(2)&(6}(b} of the Tax Code of 1997: RR No. 18-2001 BIR Ruling No. S40-0427-2020: BIR Ruling No. S40-0384-2020

St} Y :CH

San Miguel Avenue BANIQUED & BANIQUED 8/F Jolfibee Centre Pasig Cily

Attention: Attys. Terence Conrad H. Bello Emma Malou U. Lim Bernadette V. Quiroz and

Gentiemen:

Reaity Corporation ("CLARGES") and Cainta Realty Corporation ("CAINTA"). for confirmation on CAINTA. the absorbed corporation. pursuant to Section 40(C)(2) and (6)(b) of the National Internat the tax implications ot the merger by and hetween CLARGES, the surviving corporation. and Revenue Code (Tax Code) of 1997, as amended. This refers to your letter dated March 28. 2012 requesting on behalf of your clients. Clarges

Buckgroumd:.

acquire. purchase, own. hold. operate. improve. develop. manage. lease and dispose of hy sale or by any other manner, real estate. buildings. structures and/or improvements thereon: It has an authorized principal office located at 2266 Chino Roces Avenue, Makati City. It was incorporated primarily to capital stock of P8.000.000.00 divided into 80.000 shares. with a par value of P100.00 each. all of w hich has been issued and outstanding. CLARGES is a corporation duly organized and existing under the laws of the Philippines with

Philippines with principal otfice located at Don Celso S. Tuazon Avenue. Cainta. Province ot Rizal. It On the other hand. CAiNTA is a corporation duly organized and existing under the laws of the

improve. develop. subdivide. sell mortgage. exchange. lease. develop and hold for investment or their appurtenances. Its authorized capitaf stock consists of the following: was incorporated primarily to acquire by purchase. lease. donation or otherwise. and to own. use! otherwise dispose of buildings. houses. apartments and other structure of whatever kind. together with

Preferred Stock Common Stock Issued and Outstanding Issued and Outstanding Authorized Authorized Shares Par Value Amount

0f P Based on the audited financial statements as of December 31. 2010. CAINTA has total assets 00, total liabilities of F O and total stockholders' equity ot' f

improvements,' such as integrating administrative processes, thereby eliminating duplication of functions and attaining greater efficiency and economy in the management of their operations, making two (2) companies with the former as the surviving corporation, subject to the following terms and possible the more productive use of their resources, achieving more favorabte financing and credit facilities and having a single statutory audit and reportorial requirements, the respective Board of Directors and stockholders of CLARGES and CAINTA approved on April 8, 20ll the merger of the conditions: To simplify the organization and legal structure, and promote significant cost efficiency

a CLARGES. the surviving corporation, shall be renamed as "GlaxoSmithKline Landholding Company. Inc.":

b. The authorized capital stock of CLARGES shalt be increased from P8,000.000.00 to P20,000,000.00, divided into 20.000 common shares with par value of P100.00 per share; c. All the rights, privileges and powers arising out of government licenses, permits. and registration as well as all the properties, real or persona!. contractual and property rights claim, bank deposits, and every asset, right or interest belonging to or due to'CAINTA as of December 31, 2010, the Cut-Off Date of the Merger, shall be. as they are taken by. conveyed. assigned, transferred to and vested in CLARGES, as the surviving corporation:

d. Any liability and obligation falling due from CAINTA as of December 31, 2010 shall be, as they are hereby. assigned and transferred to and assumed by CLARGES; and

The exchange ratio to be applied in the merger is 8.5:1. Hence, each CAINTA shareholder shail have the right to exchange shares of CAINTA. whether preferred or common, held by them into one new common share of CLARGES:

Merger dated April 20. 20l1, with simultaneous applications to increase its authorized capital stock from P8.000.000.00 to P20.000.000.00. and to change its corporate name to GlaxoSmithKline Landholding Company. Inc. CLARGES filed with the Securities and Exchange Commission (SEC) the Articles and Plan of

the Articles and Plan of Merger. On even date, the SEC approved CLARGES' request to increase its authorized capital stock and to change its corporate name, and, accordingly, issued a Certificate of Increase of Approval of Capital Stock and Certificate of Filing of Amendment Articles of Incorporation and By-Laws. On September 12. 201 1. the SEC approved the merger and issued the Certificate of Filing of

Based on the foregoing representations. you now request confirmation of your opinion that -

The merger of CAINTA with and into CLARGES qualifies for non-recognition of gain ot CLARGES. as the transferee. on its receipt of the assets and liabilities of CAINTA in liabilities of CAINTA to CLARGES. Likewise, no gain or loss shall be recognized by loss for income tax purposes in accordance with Section 40(C)(2) of the Tax Code of (997 as amended. Hence, no gain or loss shalt be recognized on the transfer of assets and exchange for CLARGES shares:

2. The basis of the transferred assets and liabilities in the hands of CtARGES shall be the same as it would be in the hands of CAINTA;

3 The transfer of assets of CAINTA to CL.ARGES pursuant to the merger is not subject to

4.106-8(b)(3) of Revenue Regulations (RR) No. 16-2005, as amended; value-added tax (VAT) and any unused input tax of CAINTA as of the effectivity of the merger shall be absorbed by CLARGES, as the surviving corporation, pursuant to Section

4. The transfer of assets and tiabilities by CA INTA to CLARGES for the latter's shares would transaction to be effected purely for a business purposes; not be considered as transfer of property for an insufficient consideration subject to donor's tax since therc is no intention to'donate on the part of the parties in as much as the

5. The transfer of properties by CAINTA to CLARGES is not subject to documentary stamp of P1.00 on each P200.00 par value. or fractional "part thereof. will be imposed on the tax (DST) pursuant to Section 199(m) of the Tax Code of 1997, as amended. Likewise. the original issuance of shares by CLARGES to the stockholders of the CAtNTA, as a by Republic Act(RA) No.9243; surrender of the shares of stock held by the stockholders of the absorbed corporation to consequence of the merger. pursuant to Section 174 of the Tax Code of t997, as amended CLARGES in complete redemption and cancellation of the capital stock of the absorbed corporation pursuant to the merger is likewise not subject to DST. However, DST at the rate

6. The excess and unutilized creditable withholding taxes (CWT) of the absorbed corporation be the subject of a ctaim for refund or issuance of a tax credit certificate. absorbed corporation to CLARGES as a consequence of the merger, may be applied as a date of the merger being December 31, 2010, and in the succeeding taxable years. or may as of the effective date of the merger, which form part of the assets to be transferred by the tax credit by CLARGES against its income tax due for the taxable year 20!1. the effective

In reply thereto. please be informed as follows:

capitat base. increased operating economies and efficiencies, and reduction of overali business expenses. Hence, the merger of CAIN'TA and CLARGES is being undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax Code of 1997, as amended, because the acquisition and assumption by CLARGES of all the assets and liabilities of CAINTA will result to an increased financial strength of the parties through pooling of resources. a more diversified and stable I. The foregoing merger of CAINTA and CLARGES is a merger within the contemplation of

no gain or toss shall be recognized by CAINTA. as the transferor of all assets and liabilities. to CLARGES pursuant to the Plan of Merger. income tax purposes in accordance with Section 40(C)(2) of the Tax Code of 1997. as amended, that The merger of CAINTA and CLARGES qualifies for non-recognition of gain or loss for

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

any gain that was recognized in the exchange. (Sec. 40 (() (5) (u) of the Tux (ode of 199". us CAINTA upon the exchange shalt be the same as the bases of the properties. stocks or securities exchanged. decreased by (1) the money received. and (2) the fair market value of the other property/ies received and increased by (a) the amount treated as dividend of the shareholders and (b) the amount of memded On the other hand. the bases of the shares of stocks to be received by the shareholders of

: Old tax rate since the Articles and Plan of Merger was approved by SEC on September 12, 2011.

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any. recognized to the transferor (CAiNTA) on the transfer. (Sec. +0 (C) (5) (b), supra) same as it woutd be in the hands of the transferor (CAINTA) increased by the amount of the gain, if The basis of the properties transferred in the hands of the transferee (CLARGES) shali be the

property is subject exceed the total of the adjusted basis of the properties transferred pursuant to such exchange, then such excess shall be considered as a gain, on the part of the transferor, from the sale or (4)(b}, supru) exchange of a capital asset or of property which is not a capital asset. as the case may be. (Sec. 40 (C) Finally, if the amount of the liabilities assumed plus the amount of the liabilities to which the

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

transferred by CAINTA to CLARGES, based on CAINTA's audited financial statements as of December 30, 20t0 shall be as foliows: Accordingly. the allocated shares and liabilities, and the substituted basis of the assets

TOTAL "Prepaid taxes and other current Cash Investment Property -- TCT No. assets Investment Property -- TCT No. 494266 494265 TD No. 05-0004-06462 TD No. 05-0004-0646l Assets Amount (in Php) Liabilities Allocated Allocated Shares Substituted Basis (in Php)

Income Tax Payable Accounts Payable and Other Current Liabilities TOTAI Liabilities Amount(in Php)

the intent to do an act of liberality (unimus donandi). (1) the reduction of the patrimony of the donor, (2) the increase in the patrimony of the donee. and (3) 2. Well-settled in our jurisprudence is the fact that the essential elements of a valid donation are:

donate to CLARGES its assets since the transaction is purely for legitimate business purpose. Thus, the is a bonufide merger effected solely for business reasons. aforesaid merger will not be subject to gift tax since there is no intention to donate, and 'the transaction Clearly. there is no intention on the part of any of the parties to the merger - CAINTA to

(2) of the Tax Code of 1997, as amended. (BIR Ruling No. S40-0427-2020 dated July 30, 2020) 199 (m) of the Tax Code of 1997, as amended by Republic Act No. 9243, in retation to Section 40 (C) 3. No DST is due on the transfer of assets made pursuant to the Plan of Merger under Section

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imposed on the originai issuance of shares by CLARGES to the stockholders of CAINTA as a consequence of the merger as provided under Section 174 of the Tax Code of 1997, as amended. However, a DST at the rate of Pi.002 on each P200 par value, or fractional part thereof, shall be

not be subject to any output tax, pursuant to Section 4.106-8(b)(3) of Revenue Regulations (RR) No. of properties to effectuate a merger is not made in the course of business but by operation of law by CLARGES, as the surviving corporation pursuant to Section 4.106-8(b)(3) of RR No. 16-2005, as amended by RR Nos. 4-2007 and 10-201 l. 16-2005, as amended by RR No. 4-2007 and as further amended by RR No. 10-2011. The conveyance pursuant to the merger. Thus, any unused input tax as of the effective date of merger will be absorbed 4. The transfer of properties of CAINTA to CLARGES as a consequence of the merger shall

against its income tax liabilities for 2010'and succeeding years or may be the subject of a claim for claim for refund and issuance of TCC. (BIR Ruling No. 100-2017 dated March 2, 2017) assets to be transferred by CAINTA as of the effective date of the merger, shall be transferred to and vested in CLARGES, as the surviving corporation, and such excess CWT may be utilized by the iatter refund or issuance of a tax credit certificate (TCC) subject to existing laws, rules and regulations on the 5. Any excess and unutitized creditable withholding taxes (CWT). if any, which form part of the

corporation, CAINTA, as of the effective date of the merger, shall be carried forward and credited immediately succeeding taxable years pursuant to Section 27 (E) (2) of the Tax Code of 1997.`as amended. Since the excess and unexpired MCIT of CAINTA, is among the rights, privileges, property and/or interest of CAINTA, the excess and unexpired MCIT of the latter shall be transferred to and against the normal income tax due of the surviving corporation, CLARGES, for the three (3) MCIT. if any, shall be carried forward and credited against the normal corporate income tax of CLARGES subject to the three-year-carry-forward period reckoned from the date of payment of CAINTA of its MCIT. vested in CLARGES on the effective date of the merger. Thus, CAINTA's excess and unexpired 6. The excess and unexpired Minimum Corporate Income Tax (MCIT). of the absorbed

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

tax on dividends constructively received by its shareholders pursuant to Section 24 (B)(2) of the 'Tax Code. as amended. (BIR Ruling No. 1422-18 dated Decemher 7. 2018) 8. The retained earnings. if any. of CAINTA are subject to the ten percent (10%) final withholding

the following requirements set forth under RR No. 18-2001: (C) (2) and (6) (b) of the Tax Code of 1997, as amended. the parties to the merger should comply with In order that the above-described reorganization can be considered as merger under Section 40

A. I`he plan of reorganization should be adopted by each of the corporations, parties thereto. the adoption being shown by the acts of its duly constituted responsible officers and appearing upon the official records of the corporation. Each corporation, which is a party'to the reorganization. shall file. as part of its return for the taxable 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:

2 The Plan of Merger was approved by SEC on December 29, 2010

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

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 inoney received from on the basis of the fair market value thereof at the date of the exchange: the exchange, including a statement of all distribution of other disposition made thereof The amount of each kind of stock or securities and other property received shall be stated

4. A statement of the amount and nature of any tiabilities assumed upon the exchange, and the amount and nature of any tiabilities to which any of the property acquired in the exchange is subiect.

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

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

( Records in substantial form shall be kept by every taxpayer who participates in a tax-free

the transferred property or money received (including any liabilities assumed on the exchange. determination of gain or loss from subsequent disposition of such stock of securities and other or any liabilities to which any of the properties received were subject). in order to facilitate the property received from the exchange. exchange in connection with a corporate reorganization showing the cost or other basis of

tax returns for the taxable year in which the merger occurred a copy of the request for ruiing fited with. the appropriate office of the Bureau of Internal Revenue. and the corresponding ruling issued by, the Bureau of Internal Revenue, both duly stamp-received by In addition to the foregoing requirements. the parties shail enclose with their respective income

subject properties are subsequentiy transferred to another transferee. taxable year in which the merger occurred a statement to the etfect that they hold such assets/shares acquired in a merger and the year in which such merger occurred, and in the taxabie years until the Such parties shall include as a note to their respective audited financial statements for the

corporation shall record in their respective books of accounts the'mandatory accounting entries stated in Annex "A" hereot. pursuant to Revenue Memorandum Order (RM0) No. 17-2016. Moreover, the shareholders of the absorbed/dissolving corporation and the surviving/transferes

Certificates of Stock. the date the merger was executed. the original/historicat'adjusted costs of The parties shall cause to annotate at the back of the Transfer Certificates of Title and

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original/historical/adjusted bases of the properties and/or real properties involved in the transfer and 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; provided however. that any violation by the Corporate Secretary of this condition shall be penalized under Section 275 of the Tax Code of 1997. it is"further required that within ninety (90) days from receipt of this ruling, the parties to the transaction must submit to the Legal and Legislative Division, certified true copies by the Corporate Secretary. of 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. Bureau of Internal' Revenue, proof of annotation of the

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

Very truly yours.

aaw

Commissioner of Internal Revenue CAESAR R. DULAY

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sps(cainta-clarges merger) K-

PROFORMA ENTRIES - MERGER Annex "A"

Particutars s't he entry jies shall be per individual sharebolder of the absorbed cu,pu Individual Shareholders' Book Transferee' > Book

Suhse quen Salc ! Rccord ['ransfer Sheet Notes {Entry Prot'oma I ntries to TExchange [Balance Record the [T'ax-t'ree I:ntr to Jouma ICash or Accounts receivables HIo record subsequent sale - Iranster of insestinent acquired thru Iax-Free fixchange pe and no of share) ot (name of sransferce) with par Paggregate fair market value of p [Investment in (name of uransteree) value of' p (share type) shares of (name issurg.corporation/s) with To record the Tax-Free Exchange ( TFE) of nvestment in Investment in (name of transferee) Gain on Sale of Investment and which have fatr market value as of the date of exchange amounting to P Investment inctudes (no. and pe of share/s) with par from the Tax-Free Exchange of investinent in (no_ and.) ty pe of share/s) of (Issuing corporauon/s) covered hy were acquired for the total cost of (substituted basis) Stock Certificate No/s Investment in (name ofdissolying corporationg Value of P Di idend Incoine (net of FWT on dividend} per share in (name of transteree) resulting in exchange for which Xx YXN AX X x} XXX x s sx[PPF - 1and & Improsement (for real props) xs foihers Assets (as apphieahle) [Cash or Accounts recervables investment s and/or other assets acqunred thru Fax-Free To record suhsequent sale : transter of real properttes. [and other assets with aggregate far market value of (transferee) with par value of' P funvestment in (share type) shares of (naine issuing corp/s). Inerger. in exchange for (type and no. of share) of (name of To record the Tax-Free F:xchange (TFF) of'real properties. investment m (rssuing corp. for shares of stoch) t and & Improve(nent / Other Assets Gain on Sale ot Invesiment Investnient in (ngine of issuing corporatop) PPF on (date} The total acquisition cost/suhstituted cost to (FMV at the time of exchange). The real properties. by Transfer Certificate of Title and Stock Certificate ot (issuing corporation/s) and other assets were acqured (ame of Iransferee) of the investments amounts to Investment/s and other assets were previously covered are now presently covered by Stock Certificate No's shares m the name of (name of transferee)) through merger as evidenced by Plan of Merger and Articles of Merger, including the increase of the approved hy the Securities and txchange (ommission NoS Reat properttes, investment in (no and type ol'sharers) Authorized Capital Stock of (name of transferee)) ('apital Stock ( tablities Additional Paid-In Capitat . Includmg liabilities assumed resulting from constituting (no and ty pe of share/s) {totaf} Issued by (Issuing corporatjotys) and per share X XAX YX X W X I Xxx tXX.Xx x w x

(`urent Tas Payahle x Xx C'uffent Tas Pavable LX.L L

Proviston for Fax as follows Provsion for tax as follows

OR [Stonk Transaction ( OR fSock. fransaction f. mpulaon lm Re T ess t'snt ruhshuled Han the (a rales used in the compottthon ot vet (api} un fand Shck. J>et Caplal Ciasns I II uhsequent >ale Iransacton F at the ime ot t.i-Itee evch.hee shall apph Velling Prile Aet t apital G.un on -ale nl unksted shares Net Capral (rains Ias Tutal Tax Payabk Tar Ty pe d on Snhsequent Sule af (nves(men <"g sn PoxHUfMI and TP"a sin e\Ce>5 I 2 n " I "a Ta Rale Nefe made heote lnun ISlx Ic ians reah/ed c. FMV iI Inv , J! Selb.og Price ol ms esiment at the the ime ol TFF E nans reahred ont suhsequent sale of ins estment s >uhsequent su!e Multiply By 1m H5 W Lmnunt non sle ol proper IW .uth. } W thholding Ias. Documentan Slamp Total fas Payable alne m de salue terlected m the tav declaraion w huchevet in ngtest (A-TT I as ios T I atue. Added f.i. V Totat Tas Payable Net Capital (r.ins I as Slock Trans.ction fa [i. Ty pt Tax Typs cote-equent -ale trnfer relers t he -atbne prce sont [and fractional part thereof [perRRAn lureen Pl + w of t** Ta Rate k at I Hmaltparae Inme lsvt insestment at the the pfnpert tes V.due if AV tuh equent .le Sans fealved on Selling Price + Suhsequent s.t Uil int estment s Malliply By subsequent sale Multiply By .I the time a .ur Narke Lranster Deu nount Wmotn I M

Per RM}!.( thehtuted nvo theto C Ih a t-lee dthante sh.atl he a

Lr marhets Hste od the uther pfapers teesed t ins (a,Plus (u the imount heted p i fend t the het.er I:e .nwount Iheir, TT erfd1eti ne (t mndghh -F.. 3 .f1:- ah t'MlLeE