BIR Ruling No. 612-2020

Quezon City

Sec.40C2&6b,NIRC BIR Ruling Nos. 214-12, RR No. 18-01 100-17& 075-18 S40M-0612-2020 OCT 2.7'2020

City Center North, BGC, Taguig DAIICHI PROPERTIES,INC 3/F One World Place, 32nd Street

Attention: Salvador T. Uy

President

Gentlemen:

HOLDINGS, INC. (GRAND FORTIS), as the absorbed corporations is a tax-free merger Code of 1997, as amended (the "Tax Code). opinion that the merger between DAIICHI PROPERTIES, INC. (DAIICHI), as the surviving corporation,and GRAND ARCIS HOLDINGS,INC.(GRAND ARCIS) and GRAND FORTIS pursuant to Section 40(C)(2) in relation to Section 40(C)(6)(b) of the National Internal Revenue This refers to your letter dated September 11, 2020 requesting for confirmation of your

Background

with Securities and Exchange Commission (SEC) Company Registration No. DAIICHI is a corporation duly organized and existing under the laws of the Philippines and

residential, commercial and industrial property and concerning all kinds of personal property. DAIICHI was organized primarily to deal, engage, invest and transact, directly or indirectly, in including but not limited to the acquisition, development, utilization, and disposition of Third Floor, One World Place, 32nd St., City Center North, Bonifacio Global City, Taguig City. all forms of business and mercantile acts and transactions concerning all kinds of real property. Tax Identification Number (TIN) having its principal place of business at

DAIICHI has an authorized capital stock of

with a par value of Class Ashares and , divided into shares are subscribed, fully paid and outstanding. Peso (P ) per share, of which Class B shares

As of June 30, 2019. the carrying amounts and fair values of DAIICHI show: total assets

Pesos (P of total liabilities of and total

stockholders' equity of

the laws of the Philippines with SEC Company Registration No. TIN GRAND ARCIS, on the other hand, is a corporation duly organized and existing under having its principal place of business at 3rd Floor, Lot 7 Block 5, 32nd and

St.,City Center North, Bonifacio Global City, Taguig City. GRAND ARCIS was organized

primarily to carry on business as a holding company,including but not limited to, the acquisition

by purchase, exchange, assignment, gift, importation or otherwise, and to hold, own and use for

investment or otherwise, and to seli, assign, transfer,exchange,mortgage, pledge,traffic or otherwise, and to hold, own and use for investment or otherwise and to sell, assign, transfer.

exchange,mortgage,pledge,traffic or otherwise to enjoy and dispose of all types of property

including but not limited to land, condominium unitsbuildings, machineries, equipment.

bonds, debentures, promissory notes, shares of capital stock, or other securities or obligations,

O

Page 2 of 7 DAIICHI PROPERTIES,INC S40M-0612-220 OCT 2 7 2020

domestic and while the owner thereof, to exercise all rights, powers and privileges of ownership, including the right to receive, collect and dispose of , any and all dividends, rentals, interest and income, derived therefrom and generally perform acts or things design to promote, protect. preserve, improve or enhance the value of any or such properties to the extent permitted by law, but not acting as a broker or dealer of securities. created, negotiated or issued by any corporation, association, or other equity, foreign or

subscribed, fully paid and outstanding. (P value of GRAND ARCIS has an authorized capital stock of P , divided into ) per share, of which shares with a par shares are

Pesos As of June 30, 2019 the audited balance sheet of GRAND ARCIS shows total asset of total liabilities of Pesos ( ( ) and total stockholders' equity of

acting as a broker or dealer of securities. the right to receive, collect and dispose of, any and all dividends, rentals, interest and income, improve or enhance the value of any or such properties to the extent permitted by law, but not to hold, own and use for investment or otherwise and to sell, assign, transfer, exchange. negotiated or issued by any corporation, association, or other equity, foreign or domestic and while the owner thereof, to exercise all rights, powers and privileges of ownership, including derived therefrom and generally perform acts or things design to promote, protect, preserve, or otherwise, and to sell, assign, transfer, exchange, mortgage, pledge, traffic or otherwise, and mortgage, pledge, traffic or otherwise to enjoy and dispose of all types of property including but not imited to land, condominium units, buildings, machineries, equipment, bonds. debentures, promissory notes, shares of capital stock, or other securities or obligations, created on business as a holding company, including but not limited to, the acquisition by purchase, exchange, assignment, gift, importation or otherwise, and to hold, own and use for investment of the Philippines with SEC Company Registration No. North, Bonifacio Global City, Taguig City. GRAND FORTIS was organized primarily to carry having its principal place of business at 3rd Floor, Lot 7 Block 5, 32nd St., City Center Finally, GRAND FORTIS, is a corporation duly organized and existing under the laws and TIN

are subscribed, fully paid and outstanding. P value of GRAND FORTIS has an authorized capital stock of . divided into CP I per share, of which shares with a par ) shares S

of As of June 30. 2019, the audited balance sheet of GRAND FORTIS shows total assets

total liabilities of and total stockholders' equity of

merger GRAND ARCIS and GRAND FORTIS will be the absorbed corporations and will be merged with DAIICHI, the surviving corporation. GRAND FORTIS executed a Plan of Merger dated September 5,2019.Under the said plan of constituent corporations decided to effect a merger, thus, DAIICHI, GRAND ARCIS and In order to enhance economic and operational efficiency for the business involved, the

2/3 of its outstanding capital stock at a special stockholdersmeeting held on July 29, 2019, and least 2/3 of its outstanding capital stock at a special stockholders' meeting both held on July 29, was approved by the stockholders of GRAND ARCIS and GRAND FORTIS representing at 2019. The Plan of Merger was approved by the stockholders of DAIICHI representing at least

approved Articles and Plan of Merger, the merger shall become effective on the date when the of which the SEC issued a Certificate of Filing of the Articles and Plan of Merger. Under the The SEC approved the Articles and Plan of Merger on December 27, 2019, by virtue

DAIICHI PROPERTIES, INC. Page 3 of 7 S4OM-0612-2020 OCT 2 7 2020

Certificate of Merger shall have been issued and released by the SEC. Accordingly, the merger took effect on December 27,2019(Effective Date of Merger).

FORTIS, which shares are composed of GRAND ARCIS and a total of Pursuant to the Plan of Merger, DAIICHI will issue a total of ) unissued authorizedcapital stock of DAIICHI. Class A shares of Stock to the stockholders ot GRAND Class A shares of stock to the stockholders of

1. The statutory merger of DAIICHI, GRAND ARCIS and GRAND FORTIS qualifies for neither DAIICHI,GRAND ARCIS and GRAND FORTIS will be subject to income tax, recognized by DAIICHI, GRAND ARCIS and GRAND FORTIS on the transfer of all assets and assumption of liabilities pursuant to the Articles and Plan of Merger, and withholding tax, or capital gains tax on the transfer. Based on the foregoing representations, you now request for your confirmation that: non-recognition of gain or loss for income tax purposes in accordance with Sections 40(C)(2) in relation to 40(C)(6)(b) of the Tax Code. Therefore, no gain or loss shall be

5. The transfer of assets by GRAND ARCIS and GRAND FORTIS to DAIICHI will not 3. The surrender by the GRAND ARCIS and GRAND FORTIS Shareholders of their 4. The DST at the rate of Pon each P 2. The transfer of assets by GRAND ARCIS and GRAND FORTIS to DAIICHI pursuant GRAND FORTIS and that the merger was undertaken purely for legitimate business merger, in favor of the GRAND ARCIS and GRAND FORTIS Shareholders. be considered as a transfer of property for an insufficient consideration subject to Donor's Tax since there is no intention to donate on the part of GRAND ARCIS and purposes. and (b) issuance of DAIICHI shares that were previously owned by GRAND ARCIS and GRAND FORTIS and were reacquired by DAIICHI as a consequence of the DAIICHI shares pursuant to the merger is not subject to DST. imposed on the following: (a) original issuance of DAIICHI shares in favor of the GRAND ARCIS and GRAND FORTIS Shareholders as a consequence of the merger: to the merger is not subject to DST under Sections 199(e) and (m) of the Tax Code. par value, or fractional part thereof, shall be

6. The transfer of assets by GRAND ARCIS and GRAND FORTIS to DAIICHI pursuant to the merger is not subject to value-added tax (VAT).

7. Since the legal and beneficial ownership of excess creditable withholding taxes were regular corporate income tax liabilities. them. Hence, DAIICHI is entitled to carry forward and apply these excess creditable withholding taxes as credit against its Minimum Corporate Income Tax (MCIT) or effectively transferred to DAIICHI as a consequence of the merger, DAIICHI as the surviving corporation is now entitled to exercise all the attributes of ownership over

In reply thereto, please be informed as follows:

the purpose of escaping the burden of taxation. own, hold, and manage various assets for the same beneficial owner. Hence, the merger of GAHI, GFHI and DAIICHI is being undertaken for a bona fide business purpose and not for the Absorbed Corporations and the same is necessary and advisable and is to the advantage and welfare of the merging corporations and their respective stockholders since the corporations merger within the contemplation of Section 40(C)(2), in relation to Section 40(C)(6)(b) of the Tax Code, as amended, because DAIICHI shall acquire/assume all the assets and liabilities of 1. The foregoing merger of GRAND ARCIS, GRAND FORTIS and DAIICHI is a

Tax Code, as amended, in that no gain or loss shall be recognized by GRAND`ARCIS and recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the The merger of GRAND ARCIS, GRAND FORTIS and DAIICHI qualifies for non-

Page 4 of 7 DAIICHI PROPERTIES,INC. S40M-0612-2020 OCT 2 7 2020

GRAND FORTIS, as the transferors of all assets and liabilities, to DAIICHI pursuant to the Articles and Plan of Merger.

receipt of the asset and liabilities of GRAND ARCIS and GRAND FORTIS pursuant to and as a consequence of the merger. Accordingly, no gain or loss shall be recognized by DAIICHI, as the transferee, on its

shareholders and (b) the amount of any gain that was recognized in the exchange. (Sec. 40 and GRAND FORTIS upon the exchange shall be the same as the basis 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 (C)(5)(a) of the Tax Code) The basis of the shares of stocks to be received by the Shareholders of GRAND ARCIS

transferors on the transfer. (Sec. 40 (C)(5)(b), supra) ARCIS and GRAND FORTIS) increased by the amount of the gain, if any, recognized to the Annex "A" hereof, shall be the same as it would be in the hands of the transferors (GRAND The basis of the property transferred in the hands of the transferee (DAIICHI), listed in

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

Memorandum Ruling (RMR) No. 2-2002 dated June 10, 2002. FORTIS to DAIICHI should strictly comply with the rule that cash and other cash items will be excluded from the computation of the adjusted bases 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 The substituted bases of the properties transferred by of GRAND ARCIS and GRAND

by of GRAND ARCIS and GRAND FORTIS shall be as follows: Accordingly, the allocated shares and the substituted basis of the properties transferred

GRAND ARCIS HOLDINGS, INC.

Cash in banks Assets Amount Liabilities Allocated Allocated Shares Substituted Basis

Prepaid Expense

Input value-added tax

Investment property (TCT No.

Total

Liabilities Amount

Total Due to a stockholder Accrued expenses

GRAND FORTIS HOLDINGS, INC

Assets Amount Allocated Liabilities Allocated Shares Substituted Basis

Cash in banks O C

DAIICHI PROPERTIES, INC. Page 5 of 7 C40 M 0 6 12 -202 OCT 2 7 2020

Prepaid Expense

Input value-added tax Investment 2019000286) property (TCT Total No. 164

Total Accrued expenses Due to a stockholder Liabilities Amount

to DAIICHI pursuant to the Articles and Plan of Merger under Section 199(m) of the Tax Code, as amended by Republic Act No. 9243, in relation to Section 40(C)(2) of the Tax Code, as amended. 2. No DST is due on the transfer of assets of of GRAND ARCIS and GRAND FORTIS

of the Tax Code, as amended by Republic Act No. 9243, in relation to Section 40(C)(2) of the FORTIS of their shares of stock for cancellation pursuant to the merger under Section 199(m) Tax Code, as amended. No DST is due on the surrender by the Shareholders of of GRAND ARCIS and GRAND

Pursuant to Section 174 of the Tax Code, as amended, DST at the rate of F on each

issuance of DAIICHI shares in favor of the Shareholders of of GRAND ARCIS and GRAND par value, or fractional part thereof, shall be imposed on the following: (@) original

FORTIS as a consequence of the merger.

3. Well-settled in our jurisprudence is the fact that the essential elements of a valid

of the donee; and (3) the intent to do an act of liberality (animus donandi). donation are: (1) the reduction of the patrimony of the donor; (2) the increase in the patrimony

Clearly, there is no intention on the part of of GRAND ARCIS and GRAND FORTIS to donate to DAIICHI their 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,

and the transaction is a bona fide merger effected solely for business reasons.

4. The transfer of assets/properties of GRAND ARCIS and GRAND FORTIS to

DAIICHI as a consequence of merger is not subject to value-added tax (VAT) pursuant to

Section 105 of the Tax Code, as amended. The transfer of assets/properties to effectuate a

merger is not made in the course of business but by operation of law pursuant to the merger.

The excess and unutilized creditable withholding taxes (CWT) of the absorbed

corporations, of GRAND ARCIS and GRAND FORTIS, as of the effective date of the merger,

if any, may be applied as a tax credit by DAIICHI against its income tax due for the taxable

year 2019, the effective date of the merger being December 27,2019, and in the succeeding

taxable years, or may be the subject of a claim for refund or issuance of a tax credit certificate

(TCC).

5. It is to be emphasized, however, that the net operating loss carry-over (NOLCO).

under Section 34 (D)(3)of the Tax Code, and as implemented by RR No. 14-2001, of the Tax

Code, of the Absorbed Corporations, if any, is not one of the assets of the latter that can be

transferred and absorbed by the surviving corporation, as this privilege or deduction can be

availed of by the absorbed corporation only. Accordingly, the tax-free merger between GAHI

and GFHI and DAIICHI does not cover the NOLCO of the former.

S40M0512-0

DAIICHI PROPERTIES, INC. OCT 2 7 2020

Page 6 of 7

under Section 40(C)(2) and (6)(b) of the Tax Code, the parties to the merger should comply with the following requirements set forth under Revenue Regulations 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 corporations, parties thereto, the adoption being shown by the acts of its duly constituted responsible officers recognition of gain or loss in connection with the reorganization, including: 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-

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

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

4. A statement of the amount and nature 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

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: a corporate reorganization shall incorporate in his income tax return for the taxable year

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 every taxpayer who participates in a tax-

free exchange in connection with a corporate reorganization showing the cost or

other basis of the transferred property or money received (including any liabilities

assumed on the exchange, or any liabilities to which any of the properties received were

subject), in order to facilitate the determination of gain or loss from subsequent

disposition of such stock of securities and other property received from the exchange.

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.

Page 7 of 7 DAIICHI PROPERTIES,INC. S4OM- 0 612 - 2 0 2 OCT 2 7 2020

record in their respective books of accounts the mandatory accounting entries stated in Annex "B" hereof, pursuant to Revenue Memorandum Order No. 17-2016. Moreover, the shareholders of both of GRAND ARCIS and GRAND FORTIS shall

Certificates of Stock, in respect of the shares of stock of transferee corporation, including the allocation of shares and computation of the substituted bases of the properties which shall be in accordance with RMR No. 2-2002. of the same 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 and Legislative Division, Bureau of Internal Revenue, certified true copies by the Corporate Secretary, of duly annotated Certificates of Stock, as the case may be, 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 Corporate Secretary of this condition shall be penalized under Section 275 The parties shall, cause to annotate at the back of the Transfer Certificates of Title and

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

eiana Very truly yours,

Commissioner of Internal Revenue CAESAR R. DULAY

K-1 :* 037426 O

TA

Annex "A"

and Revenue Memorandum Order No. 32-2001 dated November 28, 2001) (Pursuant to Section 40(C)(2) and 6(c) of the Tax Code of 1997. Revenue Regulations No. 1'8-2001`dated November 13, 2001 LIST OF PROPERTY/IES TRANSFERRED

Name of Transferee: DAIICHI PROPERTIES, INC.

No. Certificates of Title No./Tax Declaration Transfer Nos. Property Description and Classification Acquisition Cost Depreciation Original/Adjusted Basis (in PhP)

Land/Industrial

2 Land/Industrial

TOTAL

as reflected in FS of GAHI and GFHI as against the total cost of the real properties stated above represents the Development Cost. *The total difference of as compared to the total amount of Investment Properties

S

PROFORMA ENTRIES-MERGER Annex "B"

Particulars (The entry/ies shall be per individual shareholder of the absorbed corporation) Individual Shareholders'Book Transferec's Book

Journal Entry to Record the Tax-Free Exchange Investment in (name of transferee) Investment in (name of dissolving corporation) Dividend Income (net of FWT on dividend) XXX.XX XXx.xxPPE - Land & Improvement (for real props) xxx.xx[Others Assets (as applicable) Investment in (issuing corp, for shares of stock) Additional Paid-In Capital Liabilities Capital Stock XXX.XX XXX.X XXX.XX XXX.XX XXXXX XXX.XX

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

Balance Sheet Notes Entry Investment includes (no. and type of share/s) with par from the Tax-Free Exchange of investment in (no. and acquired for the total cost of (substituted basis) and which have fair market value as of the date of exchange amounting to P value of P type of share/s) of (issuing corporation/s) covered by Stock Certificate No/s. in (name of transferee) resulting which were Real properties, investment in (no. and type of share/s) through merger as evidenced by Plan of Merger and approved by the Securities and Exchange Commission on (date). The total acquisition cost/substituted cost to of (issuing corporation/s) and other assets were acquired Articles of Merger, including the increase of the Authorized Capital Stock of (name of transferee), (name of transferee) of the investment/s amounts to (FMV at the time of exchange). The real properties,

Transfer Certificate of Title and Stock Certificate No/s. investment/s and other assets were previously covered by

constituting (no. and type of share/s) [total] shares in the presently covered by Stock Certificate No/s. name of(name of transferee) issued by (issuing corporation/s) and are now

Proforma Record Subsequent Sale I Transfer Entries to thru Tax-Free Exchange Cash or Accounts receivables To record subsequent sale / transfer of investment acquired Current Investinent in (name of transferee) Gain on Sale of Investment Tax Payable XXX.XX XXX.XX XXX.XX XXX.XX XXX.XX Cash or Accounts receivables investment/s and/or other assets acquired thru Tax-Free Current To record subsequent sale / transfer of real properties, Tax Payable & Improvement / Other Assets Investment in (name of issuing corporation) / PPE - Land Gain on Sale of Investment XXX.XX XXX.XX XXX.X XXX.XX XXX.XX

Provision for Tax as follows: Provision for tax as follows.

Net Capital Gains Tax Tax Type 5% on P100,000 and 10% on excess Tax Rate* Gains realized Multiply By on TFE Amount Net Capital Gains Tax Tax Type Tax Rate* 15% Gains realized on subsequent investment/s Multiply By sale of Amount

OR [Stock Transaction Tax 1/2 of 1% FMV of inv/s at the time of TFE OR Stock Transaction Tax 6/10 of 1% Selling Price of investment at the time of

XX.X subsequent sale XXX.XX

OR Stock Transaction Tax 2 If subsequent sale/s of investment/s was/were made before January 1, 2018. the tax rates used in the computation of Net Capital Gains Tax and Stock Total Tax Payable Net Capital Gains Tax 6/10 of 1% 1% subsequent sale on subsequent Selling Price of Gains realized nvest investment's Sale of time of It at the XXXXX (XXXX 1Witholding Tax 2 :gg Tax Type Tax (DST) Value-Added Tax Total Tax Payable (VAT) Total Tax Payable ONETT ocumentary Stamp 1.5% to 6% per RR No. 6[ 1.5% for every P1,000 and fractional part Rate 200 hereof 12% the property/ies Va|ue (FMV) of subsequent sale/ Multiply By Fair Market at the time of transfer Amount x. XXXXX XXX.XX XXX.XX XXX.XX

Transaction Tax at the time of tax-free exchange shall apply. *Gain on sale of property/ies is subject to Normal Corporate Income Tax (NCIT) * Computation of Gain Realised on Subsequent Sale of Investment Less: Cost (Substituted Basis) Net Capital Gain on sale of unlisted shares Selling Price x. XXXX XXXXX *FMV at the time of subsequent sale / transfer refers to the selling price, zonal value or the value reflected in the tax declaration, whichever is highest.

Per RMO 17-2016, the substituted basis of the stock or securities

follows: (l) The original basis of the propertystock or securities eceived by the transfe tax-free exchange shall be a

to be transferred;2 Less:a money received,if any,andb the

(b) the amount of any gain that was recognized on the exc (a) the amount treated as dividend of the shareholder, if any, and fair market value of the other property received,if any(3)Plus: ange

if any.

Q