BIR Ruling No. 350-2021

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARI'MENT OF FINANCE

Quezon City

Section 40 (C) (2) and 6 (c) of Code of 1997, as amended BIR Ruling No. 0377-2019 the National internal Revenue SACAY 317

:.L:.

9th Floor, Clipp Center, GASPAR CANEBA FRANCO I t th Ave. Corner 39th St. Bonifacio Global City, Taguig City 1634

Attention: ATTY. MARIA KATRINA C. FRANCO For the Firm Gentlemen:

surviving corporation, is subject to tax in the Philippines. Giobai Medical Solutions, Inc. ("GMSI"), for a ruling on whether or uot due to the merger of Syncor Overseas Ltd. ("SOL")`and Global Medical Solutions, Ltd. ("GMSL"), both British Virgin Islands registered corporations, the transfer of shares of SOL in GMSI to GMSL as the This refers to your letter dated February 21, 2017, requesting on behalf of your client.

Background:

with address at 6464 Canoga Avenue. Woodland Hills, California, USA. At the time of Syncor business in the Philippines under the Foreign Investments Act of 1991. Securities and Exchange Commission ("SEC") on June 15, 1994, as a domestic corporation Corporation duly organized and existing by virtue of the laws of the state of Delaware. USA, Philippines' incorporation, Syncor International owned 132,745 (the "Subject Shares") out of with address at 3/F No."14 Economia Street, Pasig, Metro Manila, which is ninety-nine percent (99%) owned by Syncor International Corporation ("Syncor International"), an American 132,750 shares of common stock. Syncor Philippines also applied for and was authorized to do GMSI was registered as Syncor Philippines, Inc. ("Syncor Philippines") with the

Health 414, Inc. (Cardinal Health"). On January 2, 2013. Syncor International amended its corporate name to Cardinal

of Stock dated June 19, 2003. The documentary stamp tax (DST) on the transaction was duly paid, and a Certification dated October 16, 2003 from the Bureau of Internal Revenue (BIR) the name of SOL. Cay. P.O. Box 662, Tortola. British Virgin Islands, through a Deed of Assignment of Shares was secured stating that the transaction is not subject to capital gains tax (CGT) pursuant to in the Corporation to SOL, an internationai business company under the laws of the British Article (4 of the RP-US Tax Treaty. Thereafter, a new Stock Certificate No. 007 was issued in Virgin Islands, whose registered office is at Citco B.V.I. Limited, Citco Building. Wickams In 2003, Cardinai Health assigned the 132,745 shares of common stock that it owned

Solutions, Inc.(GMSI"). On May 27. 2004. Syncor Philippines amended its corporate name to Global Medical

and existing under laws of the British Virgins Islands with address at Citco Building, Wickams Cay, P.0. Box 662. Tortola. British Virgin Islands, pursuant to a Written Plan of Merger, and On November 30. 2007, SOL merged with GMSL, a Business Company established

L

GLOBAL MEDICAL SOLUTIONS, INC.

Articles of Merger also dated November 30. 2007, as a matter of strategic management to of Merger enumerated in both the Written Plan of Merger and the Articles of Merger, the parties agree on the following: consolidate ownership in the companies' assets and liabilities. Under the Terms and Conditions

1. GMSL is the sole shareholder of SOL, and will be the surviving company on the merger. on the registration of the merger. All 2,393,413 issued and outstanding shares in SOL will, with the consent of the sole shareholder, be cancelled

2. The 100 issued shares of GMSL shall, with the consent of the sole shareholder, remain outstanding on the merger. 3. The director and officer in the office of GMSL upon the effective date of Articles of Association. the merger, shall remain in office and shall hold such office until the election, qualification of the respective successors or until their tenure is otherwise terminated in accordance with the law or the Memorandum of

4. Upon the effective date of the merger, all property, assets, rights and charges, debts and provisos attached thereto. interests owned by SOL shall, in accordance with the laws of the British Virgin Islands, immediately vest in GMSL subject to any liabilities.

5. The merger of SOL into GMSL shall at all times be subject to and authorized in the manner as prescribed by the iaws of the British Virgin Islands.

to the name of GMSL, the surviving company. To date, the Subject Shares registered in the name of SOL have not yet been transferred

be filed with the Law and Legislative Division of this Bureau. Hence, this request for ruling on the following: Revenue District Office No. 39, requesting for legal opinion on the tax treatment of the merger. and requesting for confirmation of its opinion that the transaction is one that is tax exempt under Section 40 (C)(2) of the National Internal Revenue Code of 1997, as amended. The Revenue District Officer denied the request for legal opinion on the ground, inter alia, that under Revenue Memorandum Order No. 9-2014, a request for a ruling on tax exemption must On October 20, 2016, GMSI. through counsel, wrote the Revenue District Officer of

1. Whether or not, due to the merger of SOL and GMSL, there was a transfer of GMSI shares that subjects either or both foreign corporations to tax in the Philippines; and 2.If not, whether or not GMSI can now transfer the shares in the name of SOL to GMSL

In reply, please be informed as follows: Income tax

amended, does not make any qualification or distinction as to its application to a corporation. Thus. its application to non-resident foreign corporation is well settled.' It provides that: Section 40 (C) (2) and (6) (b) of the National Internal Revenue Code of 1997, as

1 BIR Ruling No. 0377-2019 dated July 05, 2019.

PAGE 2 OF 6

I GLOBAL MEDICAL SOLUTIONS, INC.

"SEC. 40. Determination of Amount and Recognition of Gain or Loss.

XXX XXX XXX

(C) Exchange of Property. -

xxX XXX XXX

(2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation -

(a) A corporation, which is a party to a merger or consolidation, to the merger or consolidation; or exchanges property solely for stock in a corporation, which is a party

(b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the 'stock of "another corporation also a party to the merger or consolidation; or (c) A security holder of a corporation, which is a party to the merger or stock or securities in' such corporation, a party to the merger or consolidation. consolidation, exchanges his securities in such corporation, solely for

XXX XXX XXX

(6) Definitions.

XXX XXX xXx

(b) The term 'merger' or 'consolidation'. when used in this Section. shall a iransaction to be regarded as a merger or consolidation within the purview of this Section. it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of include the cash assets of the transferor. be understood to mean: (i) the ordinary merger or consolidation. or properties of another corporation solelv for stock: Provided. That for taxation: Provided. further. That in determining whether a bona fide business purpose exists. each and every step of the transaction shall be treated as a single unit: Provided. finally . That in determining whether the property transferred constitutes a substantial portion of the property of the transferor. the term 'property' shall be taken to (ii) the acauisition bv one corporation of all or substantially all the be considered and the whole transaction or series of transaction shall

debts and provisos attached thereto. Such merger is being undertaken for a bona fide business purpose as a matter of strategic management to consolidate ownership in the companies' assets and liabilities and not for the purpose of escaping the burden of taxation. Thus it quaiifies for non-recognition of gain or loss for income tax purposes in accordance with Section 40 (C) (2) of the National Internat Revenue Code of 1997, as amended, and that no gain or loss shall be recognized by SOL, as the transferor of all its assets and liabilities, to GMSL pursuant to the merger within the contemplation of Section 40(C)(2), in relation to Section 40(C)(6)(b) of the National Internal Revenue Code of 1997, as amended, because upon the effective date of the merger, all property, assets, rights and interests owned by SOL shall, in accordance with the laws of the British Virgin Islands, immediately vest in GMSL subject to any liabilities, charges. Written Pian and Articles of Merger. Applying the above-quoted provisions in this case, the merger of SOL and GMSL is a

PAGE 3 OF 6

>+'g

GLOBAL MEDICAL SOLUTIONS, INC C

receipt of the GMSI shares pursuant to and as a consequence of the merger. Accordingiy, no gain or loss shall be recognized by GMSL, as the transferee, on its

Cost Basis

amended, states: Section 40 (C) (5) (a) and (b) of the National Internal Revenue Code of 1997, as

"SEC. 40. Determination of Anount amd Recognition of Gain or Loss.

XXX xxx XXX (() Exchumge of Property. -

XXX xXx XXX

(5) Basis.

(a) The hasis of the stock or securities received by the transferor upon recognized on the exchange: Provided. Thuat the property received ullocate the basis among the several classes of stocks or securities. the exchange specified in the above exception shall be the same as by' (1) the money received, and (2) the fair market value of the other property received, and increased by (a) the amount treated as dividend of the shareholder amd (b) the amount of any gain that was as 'boot' shall have as basis its fair market value: Provided, further. latter property subject to a liability, such assumption or acquisition be treated as money received by the irausferor on the exchange: Provided. finallv. That if the transferor receives several kinds of stock or securities, the Commissioner is hereby authorized to the hasis of the property, stock or securities exchanged, decreased That if as purt of the consideration to the tramsferor, the tramsferee of property assumes a liability of the tramsferor or acquires from the (in the amoumt of the liability) shall, for purposes of this paragraph.

(h) The basis of the property transferred in the hunds of the transferee shall be the sume as it would he in the hands of the trunsferon the transfer. increased by the umount of the gain recognized to the transferor on

amount of the gain, if any, recognized to the transferor on the transfer. (GMSL) shatl be the same as it would be in the hands of the transferor (SOL) increased by the Indubitably, the basis of the GMSI shares transferred in the hands of the transferee

Value-Added Tax (VAT)

Section 105 of the National Internal Revenue Code of 1997, as amended, states that:

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

xxx xXX XXX

person engaged therein is a non-stock. nonprofit private organization conduct or'pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the The phrase 'in the course of trade or business' means the regular

PAGE 4 OF 6

tt i' GLOBAL MEDICAL SOLUTIONS, INC.

(irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.

business but by operation of law pursuant to the merger. subject to VAT pursuant to Section 105 of the National Internal Revenue Code of 1997, as amended. The transfer of the GMSI shares to effectuate a merger is not made in the course of In view thereof, the transfer of the GMSI shares as a consequence of the merger is not

Donor's Tax

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

donate to GMSL its GMSI shares 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. Clearly, there is no intention on the part of any of the parties to the merger - SOL to

Documentary Stamp Tax

Republic Act (RA) No. 9243 and as implemented by RR No. 13-2004, states as follows: Section 199 (m) of the National Internal Revenue Code of 1997, as amended by

documents and papers shall be exempt from the documentary stamp tax: Section 173 to the contrary notwithstanding, the following instruments. "Sec. 199 Documents and Papers Not Subject to Stamp Tax. -- The provision of

Xxxxxxxxx (m) Transfer of property pursuant to Section 40(c)(2) of the National Internal Revenue Code of 1997. us amended.

cancellation pursuant to the merger. Thus, no DST is due on the surrender by SOL shareholders of their SOL shares for

the Philippines. by GMSL is not subject to DST on original issuance of shares under Section 1 74 of the National jurisdiction. Section 173 of the National Internal Revenue Code of 1997, as amended, only imposes DST on obligations or rights arising from Philippine sources or property situated in exchange for property is subject to DST due under Section 174 of the National Internal Revenue Code of 1997, as amended, if they are original issues, still, the shares of stock issued Internal Revenue Code of 1997, as amended, because GMSL is a corporation organized and existing under the laws of the British Virgin Islands, therefore, not within the Philippine taxing Also, while Section 9 of RR No. 13-2004 states that the shares of stocks issued in

non-recognition of gains provided for in Section 40(C)(2) of the National Internal Strict compliance of requirements to avail Revenue Code of 1997 as amended.

they should comply with the requirements hereunder mentioned. provided for in Section 40' (C) (2) of the National Internal Revenue Code of 1997, as amended. In order that the parties to the exchange can avail of the non-recognition of gains

a result of such merger: provided however. that any violation by the Corporate Secretary of acquisition of the shares of stock involved, and the fact that no gain or loss was recognized as Certificates of Stock the date the merger was executed, the originai or historical cost of The parties shall cause the Corporate Secretary of GMSI to annotate at the back of the

PAGE 5 OF 6

ttt

GLOBAL MEDICAL SOLUTIONS, INC.

this condition shall be penalized under Section 275 of the National Internal Revenue Code of 1997, as amended.

bases of the shares of stock transferred/received in connection with this transaction, as duly certified by the Corporate Secretary, should be submitted to the Law and Legislative Division. (90) days from the date of the receipt of this Ruling, by any of the parties to the transaction. Otherwise, this ruling shall be void and without effect, and the Chief, Law and Legislative Bureau of Internal Revenue, 7/F National Office Building, Diliman, Quezon City, within ninety Division shall refer the docket of the case to the Prosecution Division for appropriate action. It is further required that the Certificate of Stock that bears the annotation of substituted

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.

Very truly yours.

8u3amy

S-K-I-LMAT Commissioner of Internal Revenue CAESAR R. DULAY 045885

PAGE 6 OF 6