BIR Ruling No. 331-2020

BUREAU OF INTERNAL REVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE

IDD Quezon City

Sec.39& 106(B)(1) 000-00 0 3 3 1 - 0 2Tl Nos. 926-55-36/927-09-63 VAT - Person to Contact: Chief, Law & Legislative Division

Date: -JUN 1 6 202L

Makati City 1226 Reyes Tacandong & Co. Citibank Tower 8741 Paseo de Roxas

Attention: Atty. Rafael Vinzon Tax Services

Gentlemen:

Philippines Corporation for confirmation of your opinion that: This refers to your letter dated April 1 1, 2017 requesting on behalf of your client, Total

1) Pursuant to the Deed of Sale executed between Total Philippines Corporation with Filoil Energy Company, the sale of the service gas stations is subject to value-added tax, it being a transaction deemed sale under Section 106 (B)(1) of the National Internal Revenue Code of 1997, as amended; and

2)The assignment of goodwill is not subject to VAT as it is an assignment of a capital asset.

at"7th Floor, 11th Corporate Center, 11th Avenue corner Triangle Drive, North Bonifacio. organized and existing under the laws of the Republic of the Philippines with registered address Bonifacio Global City, Taguig City. As represented, Total Philippines Corporation is a domestic corporation duly

a Deed of Absolute Sale covering the following service stations: On July 8, 2016,1 Total Philippines Corporation and Filoil Energy Company executed

Calasiao, Pangasinan Station Name National Road, Mancup, Calasiao, Pangasinan, (Galaxi-Calasiao) Station Address Market Value in Pesos

Malasiqui Malasiqui,Pangasinan

FBT-Solana FBT-Buguey FBT-Abulug FBT-Bayombong San Manuel, Pangasinan Luyang,Bayombong, Nueva Vizcaya San Manuel, Pangasinan Brgy. Lingu, Solana,Cagayan Brgy.Libertad,Abulog,Cagayan Brgy.Pattao,Buguey,Cagayan

FBT-Cabatuan FBT-Solano Brgy. Diamantina, Cabatuan, Isabela Pobalacion North, Solano,Nueva Vizcaya

FBT-Jones Brgy.1,Jones, Isabela

1 Amended on January 18, 2017 to reflect the updated purchase price

VAT-0331-202 JUN 1 6 2020

Balanga -- Roman Hi-way FBT-Abucay FBT-Palihan CABCABEN Cabcaben 2 FBT-Bagac FBT-Orani FBT-Samal Orani FBT -Dumaran FBT - Limay FBT - Pilar, Bataan Camarin Sta. Mesa FBT- Quezon General Luis FBT - San Agustin Brooke's Point Culion FBT - San Vicente FBT -Taytay Abongan FBT -- Taytay Rotunda Irawan Station Name Roman National Highway, Brgy. Tuyo. Cabcaben,Mariveles,Bataan Wakas Capitangan Abucay,Bataan P. Enriquez St. cor. National Road, Brgy Brgy. Poblacion, Pilar, Bataan (Alauli) Balanga,Bataan National Road,Cabcaben, Mariveles Brgy.Poblacion,Bagac, Bataan Brgy. Tugatog, Orani, Bataan Brgy. Palihan, Hermosa, Bataan Sta. Lucia, Samal, Bataan Ilang-ilang St., Cor. Magnolia, Camarin, Brooke's Point, Palawan Poblacio, San Vicente, Palawan Poblacion, Taytay, Palawan Bataan Townsite, Limay, Bataan Brgy. Apollo, Orani, Bataan 3106 Sto. Rosario St., Purok 3, Mapulang Caloocan City 4872 Old Sta. Mesa Road, Sta. Mesa. Manila (CityOil-Sta. Mesa) Dubduban, San Agustin, Romblon Culion, Palawan Brgy. Sta. Teresita, Dumaran, Palawan Quezon,Palawan Brgy. Abongan,Taytay,Palawan Lupa, Valenzuela City Purok Pag-Asa, Irawan, Puerto Princesa, Station Address Market Value in Pesos

Palawan

Puerto Princesa Sta. Lourdes Brgy. Tiniguiban, Puerto Princesa, Brgy. Sta. Lourdes, Puerto Princesa City, Palawan

Palawan Sta. Monica Tiniguiban National Hi-way, Brgy. Sta. Monica. Princesa City, Palawan Puerto Princesa City, Palawan National Hi-way,Brgy. Tiniguiban, Puerto

FBT - Caminawit FBT-Central Central, San Jose, Occidental Mindoro Mindoro Caminawit, Bubog, San Jose,Occidental

FBT-Labangan Labangan, San Jose, Mindoro Occidental FBT-Ligaya Ligaya, Sablayan, Occidental Mindoro Rizal, Occ. Min. Barangka Rizal St., San Jose, Occidental Mindoro 1 A.Bonifacio Ave.Cor.Marcos

Malinta JP Rizal J.P.Rizal Street,Malanday,Marikina City Highway,Barangka,Marikina City Brgy.Paso De Blas,Valenzuela City Cainta FBT-Rodriguez Sitio Harangan, San Isidro, Rodriguez Rizal A.Bonifacio Ave., Brgy.San Juan, Cainta Rizal

FBT-San Mateo Gen. Luna St. Banaba, San Mateo. Rizal

Reyes Tacandong & Co.(Total Philippines Corporation)

VAT-0331-2020

JON 1 G 2020

L. Wood. Morong Tanay FBT-Pagsanjan FBT-Pangil FBT-Victoria Calaca FBT - Lemery Lemery Nasugbu- Pob. Sta. Clara Darasa Taytay Rizal Ave. Gulod Nasugbu - Wawa Lipa City Taytay - Hiway 2000 Suplang FBT-Boac FBT - Buenavista Station Name San Pedro, Morong, Rizal F.T. Catapusan St., Brgy. Plaza Aldea, Hi-way 2000, Batong Dalig, San Juan, Ex-Caltex, Lemery, Batangas 163 L. Wood St., Dolores, Taytay, Rizal J.P. Rizal Street, San Juan,Taytay Riza Sampaloc, Pagsanjan, Laguna Brgy. Isla, Pangil,Laguna Brgy. Masapang, Victoria, Laguna Expired Shell, Calaca,Batangas Ilustre Ave., Brgy. Palanas, Lemery, Batangas Brgy. Gulod, Labac, Batangas City. Sta. Clara, Batangas City, Batangas Plantation Hills, Brgy. Suplang, Tanauan, 1920 Tanay, Rizal Taytay, Rizal Batangas F. Castro Street, Poblacion, Nasugbu. Brgy. Wawa, Nasugbu, Batangas National Road, Brgy. Banay-Banay, Lipa City, Batangas Batangas Batangas Darasa, Tanauan, Batangas Brgy. Santol, Boac, Marinduque Sitio Putat, Caigangan, Buenavista. Station Address Market Value in Pesos

FBT-Mogpog FBT - Sta Cruz 1 Market Site, Poblacio, Mogpog. Marinduque Brgy. Manlibunan, Sta. Cruz, Marinduque Marinduque

Torrijos Bongabong Gasan Sta. Cruz Pob. Baco Poblacion. Baco, Oriental Mindoro Brgy. Bagong Bayan, Bongabong, Oriental Brgy. Uno, Gasan, Marinduque Maharlika, Sta. Cruz, Marinduque Poblacion, Torrijos, Marinduque

Mindoro

Bongabong 2 Brgy. Kaligtasan, Bongabong, Oriental Mindoro

Calapan FBT-Puerto Galera FBT-Calapan Mindoro Calapan City Brgy. Bayanan I, Calapan City ,Oriental Brgy. Minolo, Puerto Galera I, Oriental

Mindoro

FBT -Socorro Brgy. Catiningan, Socorro, Oriental Mindoro

Roxas, Oriental Mindoro FBT-Pili Brgy. Sta. Fe, Roxas, Oriental Mindoro New San Roque,Pili, Camarines Sur

FBT-Cawayan FBT-Cataingan FBT-Tabaco Legazpi FBT-Aroroy Luy-a Brgy. Mahayahay, Cawayan,Masbate Brgy.San Lorenzo,Tabaco,Albay Cabangan West,Legazpi,Albay Brgy.Luy-A,Aroroy,Masbate Brgy.Poblacion,Cataingan,Masbate Reyes Tacandong & Co.(Total Philippines Corporation)

VAT-0331-2020 JUN 1 6 2020

FBT-Uson FBT -Hamtic FBT- San Angel FBT - Sibalom 1 FBT-Palanas FBT-Pio V.Corpuz FBT-Umabay Pinamarbuhan FBT-Kalibo Terminal FBT-Belison FBT-Cagay Atabay FBT-Pandan FBT-San Remigio FBT - Sibalom 2 FBT-Tibiao FBT-Pina Ticao FBT-Patnongon FBT- Jordan FBT -Lambunao FBT - Batad FBT-Mina FBT -- Pototan Cadiz Station Name Brgy. Cagay, Roxas City, Capiz Brgy. Nabangig Palanas, Masbate Atabay, San Jose,Antique Brgy.Manaay,Pio Y Corpuz,Masbate Brgy. Umabay Exterior,Mobo,Masbate Brgy.Buenavista,Uson,Masbate Brgy.Pinamarbuhan, Mobo, Masbate Calipat-an, San Jacinto, Masbate Oyo Torong Extn., Bachao/Bacjao Sur, Kalibo, Aklan Brgy. Poblacion, Belison, Antique Brgy. Calala, Hamtic, Antique Brgy. Nauring, Pandan, Antique Brgy. Apgahan, Patnongon, Antique San Angel, San Jose, Antique District 01 Poblacion Sibalom, Antique Cubay, Napultan, Sibalom, Antique Malabor, Tibiao, Antique F. Parcon St., Pototan, Iloilo Iverson Road, Poblacion, San Remegio, Rizal, Jordan, Guimaras Cabalabaguan, Mina, Iloilo Cabahug St., Brgy. Zone 5, Cadiz City. Antique Brgy. Pina, Buenavista, Guimaras Pablacion, Batad, Iloilo Poblacion Ilawod, Lambunao, Iloilo Negros Occidental Station Address Market Value in Pesos

FBT-Cadiz Escalante Brgy. Caduha-an, Cadiz City, Negros Old Poblacion, Escalante, Negros Occidental Occidental

Manapla Purok Suhaga, Brgy. I-A Manapla, Negros Occidental

Bacolod -- Magsaysay Sagay Brgy. Paraiso, Sagay, Negros Occidental Magsaysay St., Brgy Zone 6, Talisay City, Negros Occidental

FBT-Murcia Brgy. Salvacion Murcia, Negros

Occidental Gatuslao Gatuslao St., Bacolod City, Negros

Occidental

Gonzaga Gonzaga cor. Mabini St., Brgy. 24, Bacolod City, Negros Occidental Libertad Cor. Smith Locsin-Libertad Streets.

Bacolod City, Negros Occidental Luzuriaga Bacolod City, Negros Occidental Brgy. 13, Luzuriaga St., Reclamation Area.

Mansilingan Mansilingan,Bangga Pare, Bacolod City

Negros Occidental Hinigaran La Carlota Cor.Yunque-Gurrea Streets, La Carlota Hinigaran, Negros Occidental City, Negros Occidental

Bagacay Brgy.Bacagay,Dumaguete City,Negros Oriental

Reyes Tacandong & Co.(Total Philippines Corporation)

VAT-0331-2020 JUN 1 G 2020

FBT - Amlan 1 FBT-Batinguel FBT-Perdices FBT - Amlan 2 FBT-Bacong FBT-Jimalalud FBT - Manjuyod Looc FBT-Daan Bantayan Valencia Taclobo Liloan Station Name National Highway, Mag-abo, Amlan, Filoil Depot, Amlan, Negros Oriental North Poblacion, Jimalalud, Negros (HMT Dumaguete City) Negros Oriental Banilad,BacongNegros Oriental Crossing Taclobo, Lower Batinguel. Oriental Suba Manjuyod,Negros Oriental Oriental Dumaguete, Negros Oriental Natl Highway, Brgy. Yati, Liloan,Cebu Perdices St., Calindagan, Dumaguete City Brgy. Piapi, Looc, Dumaguete, Negros Trenz, Valencia City, Negros Oriental Tapilon. Daan Bantayan, Cebu Station Address Market Value in Pesos

FBT -- Alcantara Mandaue Catigbian FBT -Bilar Bien Unido Subang Daku, Mandaue, Cebu Poblacion, Alcantara, Cebu Catigbian, Bohol Brgy. Nueva Esperanza, Bien Unido, Cansumbol, Bilar, Bohol Bohol

FBT-Dauis Brgy. Mariveles, Dauis, Bohol

FBT -- Guindulman Brgy. Tabajan, Guindulman, Bohol

FBT -Jagna Brgy. Looc, Jagna, Bohol

FBT - Panglao FBT - Pilar Bohol Brgy. Tawala, Panglao, Bohol Brgy. Poblacion, Pilar, Bohol

FBT-Talibon 1 FBT Talibon 2 Loay San Isidro, Talibon, Bohol Poblacion, Talibon, Bohol Poblacion Ibabao, Loay Bohol

Tagbilaran Dampas, Tagbilaran City, Bohol

FBT - Alang-alang FBT - Jaro FBT- Burayan Brgy. 83, Burayan, San Jose, Tacloban City, Leyte Brgy. Bunol Alangalang, Leyte Macopa, Jaro, Leyte

FBT-Bacolor FBT-Bontoc FBT - Sogod FBT-Lubao FBT -Tolosa FBT- Isabel Lubao -San Roque Aliaga Sta. Rosa Talavera FBT-Gapan Tacloban Zone 1, Sogod, Southern Leyte Sto. Nino, Isabel. Leyte Cabambangan, Bacolor,Pampanga Sta. Cruz,Gapan,Nueva Ecija Brgy. Dona Brigida, Tolosa, Leyte San Roque Arbol, Lubao, Pampanga National Road, Sta. Rosa, Nueva Ecija Brgy. 92, Apitong, Tacloban City, Leyte Brgy. Divisoria, Botoc, Southern Leyte San Nicolas 1st Lubao,Pampanga Poblacion West III,Aliaga,Nueva Ecija National Road,Talavera,Nueva Ecija

Bocaue FBT-Guiguinto Cagayan Valley Road, Sta. Rita. Eusebio Roque Ave. Caingin, Bocaue. Guiguinto, Bulacan Bulacan

TAMBOBONG Bocaue,Bulacan

Reyes Tacandong & Co.Total Philippines Corporation)

VAT-0331-2020 JUN 1 6 2020

FBT-Carriedo FBT - Dulong Bayan FBT-Prenza FBT-San Rafael 1 FBT- San Rafael 2 FBT - Sta. Maria 1 Shaw FBT-Bagong Ilog Sta. Maria 3 Eusebio Manggahan Station Name Carriedo, Muzon, San Jose Del Monte Dulong Bayan (Karyapay), SJDM. Bulacan Prenza 1,Marilao.Bulacan Brgy. Cruz na Daan, San Rafael, Bulacan Pantubig,San Rafael,Bulacan Matimyas St., Sta. Cruz, Sta. Maria. Bagbaguin, Sta. Maria, Bulacan Bulacan Bulacan Bagong Ilog,Pasig City Corner Pasig Blvd. & Sgt. Pascua Streets, Pasig Blvd, Brgy.Pineda, Pasig City Lit. A Eusebio Ave., San Miguel, Pasig Amang Rodriguez Avenue, Manggahan, City 1600 Station Address Market Value in Pesos

Velasco FBT - Area 1 FBT-GMA FBT - Bulihan B42 L18 Brgy. Acacia, Bulihan, Silang,. Palawan Cor. Visayas Aves., Maderan, Pinagbuhatan, Pasig City Pasig City 111 Urbano Velasco Avenue, Brgy Sta. Lucia, Dasmarinas, Cavite Cavite GMA, Cavite GMA GMA Cavite

Gen. Trias -- Priza Molino Sta. Maria 2 San Nicolas 1 Brgy. 22, San Guillermo, San Nicolas, Jomil Bldg. Rd Molino IV, Bacoor, Cavite 4102 Gov. Halili Ave., Brgy. Parada, Sta. Maria. Bulacan Bonifacio St., Brgy. Priza, General Trias, Cavite Ilocos Norte

San Nicolas 2 23, Sta. Cecilia, San Nicolas 2, Ilocos Norte Buenavista Liboro Caigangan Buenavista, Marinduque Liboro St. Brgy. Pag-asa, San Jose, Occidental Mindoro

Payompon Brgy. Payompon, Mamburao, Occidental Mindoro

FBT-Calindagan Negros Oriental Brgy. Calindagan, Dumaguete City.

Rizal, Palawan Bubog Punta Baja, Rizal, Palawan Bubog,Guimaras Magsaysay SJC-Poblacion Rizal St. Barangay 1I (Pob.), San Jose. Mindoro Occidental, Philippines Tabuk,Kalinga

TOTAL MARKET VALUE

Reyes Tacandong & Co.Total Philippines Corporation)

VAT03312020 JUN 16 2020

included the goodwill that was acquired during the operation and management of Filoil Energy was effectively transferred to TOTAL PHILIPPINES CORPORATION, which necessarily Company. As a result of the sale of the service stations, the business of Filoil Energy Company

In reply, please be informed as follows:

part of Total Philippines Corporation. Goodwill is a capital asset only on the

22, 1938, viz: As enunciated in WM H. Anderson vs. Juan Posadas, Jr., G.R. No. 44100, September

follows: "The phrase 'good will' is defined in 28 Corpus Juris, 729, section 1, as

Goodwill may be defined to be the advantage or benefit which is acquired by an establishment, beyond the mere value of the capital stock, funds, or property employed therein in consequence of the general public patronage and encouragement which it receives from constant or habitual customers on affluence, punctuality, or from other accidental circumstances or necessities, account of its local position or common celebrity or reputation for skill, or even from accident partialities or prejudices. .

profit, susceptible of valuation in money, acquired by the business by reason of the confidence reposed in it by the public, due to the efficiency and honesty According to the above-quoted definition, good will is the reputation of good form part of the capital with which it was established. It is an intangible moral shown by the manager and personnel thereof in conducting the same on name of an establishment. If the good will, that is, the good reputation of the business is acquired in the course of its management and operation, it does

account of the courtesy accorded its customers, which moral profit, once it is valuated and used, becomes a part of the assets.

This Office agrees that goodwill forms part of the capital with which it was established and once it is valuated and used, becomes a part of the assets. The Office further agrees that

goodwill is an asset representing the future economic benefits arising from other assets

acquired in a business combination that are not individually identified and separately recognized [Philippine Financial Reporting Standards 3 (Revised)]. It is an intangible asset

which cannot exist independently of the business. It cannot be sold, purchased or transferred

separately without carrying out the same transactions for the business as a whole. Goodwill

is tagged to a company or business and cannot be sold or purchased independently.

Thus, on the part of the seller, Filoil Energy Company, the amount paid for "goodwill" is part and parcel of the selling price. This is consistent with Philippine Financial Reporting

Standards 3 (Revised) that goodwill is tagged to a company or business (which is an ongoing

concern) and cannot be sold or purchased independently.

Reyes Tacandong & Co.Total Philippines Corporation)

VA(-0331-2020

JUN 1 6 2020

Revenue Code (NIRC) of 1997, as amended and as implemented by Section 2 (a) of Revenue Regulations (RR) No. 7-2003: A capital asset is defined negatively in Section 39 (A) (1) of the National Internal

"SECTION 39. Capital Gains and Losses.

(A) Definitions. -- As used in this Title -

(1) Capital Assets. -- The term 'capital assets' means property held by the taxpaver (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or of Section 34; or real property used in trade or business of the which would properly be included in the inventory of the taxpayer if on business, or property used in the trade or business, of a character which taxpayer." is subject to the allowance for depreciation provided in Subsection (F)

capital asset since (1) it is not included in stock in trade which would properly be included in the inventory at the close of the taxable year, (2) it is not held primarily for sale to customers in the ordinary course of his trade or business, (3) it is not a property used in the trade or Therefore, on the part of the purchaser, Total Philippines Corporation, goodwill is a

subsection (f) of Section 34 of the Tax Code, and (4) it is not a real property used in the trade business, of a character which is subject to the allowance for depreciation provided in or business.

Subject to VAT under Section 105 of The sale of the service gas stations is

the Tax Code of 1997, as amended.

Section 105 of the National Internal Revenue Code of 1997, as amended, provides --

"SEC. 105.Persons Liable. -- Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

XXX XXX XXX

The phrase "in the course of trade or business " means regular conduct or

pursuit of a commercial or an economic activity, including transactions

incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization

(irrespective of the disposition of its net income and whether or not it sells

exclusively to members or their guests), or government entity.

XXX XXX XXX

Reyes Tacandong & Co. (Total Philippines Corporation)

VAT-0331-2020 JUN 1 6 2020

In relation thereto, Section 14 (B) (p) (1), RR 4-2007 states

Section 14.VAT-EXEMPT TRANSACTIONS.-Sec.4.109 1(B)(1) of RR No. 16-2005 is hereby amended to read as follows:

SEC.4.109-1.VAT-Exempt Transactions.-Xxx xxx xxx.B Exempt transactions . - Subject to the provisions of Sec. 4.109-2 hereof, the following transactions shall be exempt from VAT:

XXX XXX XXX

(p) The following sales of real properties are exempt from VAT,

namely: (1) Sale of real properties not primarily held for sale to customers

or held for lease in the ordinary course of trade or business. However, even if the real property is not primarily held for sale to customers or held for

lease in the ordinary course of trade or business but the same is used in the

trade or business of the seller, the sale thereof shall be subject to VAT

being a transaction incidental to the taxpayer's main business."

The service gas stations, although not primarily held for sale or lease to customers, are ordinary assets used by Filoil Energy Company in its ordinary course of business.

Applying Section 105 of the Tax Code of 1997, as amended, in relation to Section 14

(B) (p) (1) of RR 4-2007, the sale of the service gas stations of Filoil Energy Company to

Total Philippines Corporation is subject to V AT, it being a transaction incidental to the pursuit

of Filoil Energy Company's commercial and economic activity.

Based on the foregoing, this Office is of the opinion that the total amount paid,

including the amount pertaining to assigned goodwill, by Total Philippines Corporation to

Filoil Energy Company is subject to VAT pursuant to Section 105 of the 1997 Tax Code, 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, then this ruling shall be

considered null and void.

Very truly yours,

sa1

CAESAR R. DULAY Commissioner of Internal Revenue

034308 K-1

Reyes Tacandong & Co. (Total Philippines Corporation)