BIR Ruling No. 426-2021

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sec.40(C)(2)&(6)(b) of the amended; RR No. 18-01 Tax Code of 1997, as BIR Ruling No. 214-12 BIR Ruling No. 075-18 BIR Ruling No. 100-17 NOV 15 2021 S-26-21

Pasig City, 1605 Philippines Baniqued & Bello Attorneys-at-law 8/F Jollibee Center, San Miguel Avenue

Attention: Carlos G. Baniqued

Ana Margaret T. Dahilig and

Gentlemen:

Internal Revenue Code (Tax Code) of 1997, as amended. merger between San Miguel Yamamura Packaging Corporation ("SMYPC") herein referred to as the "Surviving Corporation", and San Miguel Yamamura Asia Corporation ("SMYAC"), hereinafter referred to as the "Absorbed Corporation", is a tax-free merger in accordance with Section 40(C)(2) and 6(b) of the National This refers to your letter request for confirmation of your opinion that the

Background

1. SMYPC is a corporation duly organized and existing under Philippine of One Thousand Pesos (Php 1,000.00) per share, of which, Ten Million have been issued and outstanding shares. 7 St. Francis Street, Mandaluyong City and Taxpayer Identification Number ("TIN") authorized capital stock of Eleven Billion Pesos (P11,000,000,000.00) divided into Eleven Million (1 1,000,000) common shares with a par value Seven Hundred Eighty-Nine Thousand Thirty-One (10,789,031) shares laws with principal office at 1oth Floor, San Miguel Properties Centre, No. As of June 30, 2019, SMYPC has an

2. SMYAC, on the other hand, is also a corporation duly organized and (Php 100.00) per share, all of which have been issued and outstanding. Highway, Anabu II, Imus, Cavite and TIN authorized capital stock of One Billion Seven Hundred Million Pesos divided into Seven Million (7,000,000) common shares and Ten Million (10,000,000) preferred shares, both with a par value of One Hundred Pesos existing under Philippine laws with principal office at Km. 27, Aguinaldo (P1,700,000,000.00) containing Seventeen Million (17,000,000) shares It has a total

3 On October 23, 2019, SMYPC and SMYAC entered into a Plan of Merger. the respective Board of Directors and stockholders holding at least two- with SMYPC as the Surviving Corporation, wherein at least a majority of

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San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Asia Corporation merger Section 40(C)(2) & 6(b)

thirds (2/3) of the outstanding capital stock of SMYPC and SMYAC approved on September 19, 2019. Under such merger, the effective date shall be on the first day of the month following the SEC issuance of the Certificate of Merger. On February 24, 2020, SEC approved the Articles and Plan of Merger of the constituent corporations and issued the Certificate of Filing of the Articles and Plan of Merger on the same date.

4. The stockholders of the said corporations approved such merger in order to

simplify the operations, improve administrative efficiency, increase financial strength, eliminate duplication of functions and maintenance costs, and attain greater efficiency and economy in the management of the businesses for the mutual advantage of SMYPC and SMYAC.

5. Under the said approved Plan of Merger, SMYPC and SMYAC will be

merged in accordance with the Revised Corporation Code, and SMYAC exchange all its assets, net of liabilities and obligations for such number of common shares of the Surviving Corporation (SMYPC), based on the balance sheet of SMYAC as of June 30, 2019.

6. As of June 30, 2019, the total value of net assets of SMYAC is

Php7,001,555,038.00. However, after a Php1,000,000,000.00 dividend declaration by SMYAC, the remaining total value of net assets of SMYAC shall be Php6,001,555,038.00." As"such, SMYPC, as the surviving corporation, shali issue 6.001,555 common shares in exchange for the net assets of SMYAC with a total value of Php6,001,555,038.00 in favor of the following stockholders of SMYAC, the absorbed corporation, which ceases to have any legal personality and is deemed dissolved by operation of law and as a necessary consequence of the merger:

San Miguel Corporation ("SMC") - 3,901,011 common shares (65%)

Nihon Yamamura Glass Co., Ltd. - 2,100,544 common shares (35%) ("NYG")

The excess value of Php38.00 shall be treated as additional paid in capital of SMYPC.

7. In order to implement the merger, on February 19, 2020, SMYPC applied

for the increase in capital stock of SMYPC from Eleven Billion Pesos (Php11,000,000,000.00), divided into Eleven Million (11,000,000) common shares with a par value of One Thousand Pesos (Phpl,000.00)

Twenty Million (20,000,000) common "shares with a par value of One per share, to Twenty Billion Pesos (Php20,000,000,000.00) divided into Thousand Pesos (P1,000.00) per share.

8. On February 24, 2020, SEC approved the application for increase in capital stock and issued the Certificate of Approval of Increase of Capital Stock, Certificate of Filing of Amended Articles of Incorporation and

Certificate of Filing of the Articles and Plan of Merger on the same date.

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

1. The merger of SMYPC and SMYAC is a tax-free merger under Section

The transfer of assets by the SMYAC to SMYPC pursuant to the merger is 40(C)(2) and (6)(b) of the Tax Code of 1997, as amended, such that no gain or foss shall be recognized for income tax purposes;

not subject to value-added tax (VAT) and any unused input tax of the SMYAC as of the effective date of the merger is absorbed by SMYPC, as

3 The transfer of assets by the SMYAC to SMYPC is likewise not subject to donor's tax for lack of donative intent on the part of the SMYAC: the Surviving Corporation:

4 The transfer of assets to SMYPC is not subject to documentary stamp tax (DST) under Section 199 (m) of the Tax Code of 1997, as amended.

However, the original issuance of SMYPC shares to the stockholders of SMYAC is subject to DST at the rate of Two Pesos (P2.00) on each Two

5 The aggregate amount of Net Operating Loss Carry Over (NOLCO) of Hundred Pesos (200.00), or fractional part thereof. SMYAC as of the effective date of merger shall be transferred to SMYPC.

and the latter may claim the same as a deduction from gross income

f D Any excess and unexpired Minimum Corporate Income Tax (MCIT) of Any excess creditable 'withholding tax (CWT) of the SMYAC is transferred to and vested in SMYPC, as the Surviving Corporation, and such excess CWT may be utilized by the latter; and SMYAC as of the effective date of merger*shall be transferred to SMYPC and carried forward and credited against the normal income tax due of pursuant to Section 34(D)(3) of the Tax Code of 1997, as amended.

SMYPC.

In reply thereto, please be informed, as follows:

1 The foregoing merger of SMYPC and SMYPC is a merger within the

of SMYPC and SMYAC is being undertaken for a bona fide business purpose and not of SMYAC and the same will simplify the operations, improve administrative for the purpose of escaping the burden of taxation. efficiency, increase financial strength, eliminate duplication of functions and maintenance costs, and attain greater efficiency and economy in the management of the businesses for the mutual advantage of SMYPC and SMYAC. Hence, the merger contemplation of Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax Code of 1997, as amended, because SMYPC shall acquire/assume all the assets and liabilities

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

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

(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 any gain that shareholders of SMYAC upon the exchange shall be the same as the bases of the properties, stocks or securities exchanged, decreased by (1) the money received, and On the other hand, the bases of the shares of stocks to be received by the

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was recognized in the exchange. (Sec. 40 (C) (5) (a) of the Tax Code of 1997, as amended)

shall be the same as it'would be in the hands of the transferors increased by the The basis of the properties transferred in the hands of the transferee (SMYPC)

amount of the gain, if any, recognized to the transferors on the transfer. (Sec. 40 (C) (5) (b), supra)

liabilities to which the property is subject exceed the total of the adjusted basis of the Finally, if the amount of the liabilities assumed plus the amount 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 exchange of a capital asset or of property which is not a capital asset, as the case may be. (Sec. 40 (C) (4) (b), supra)

Revenue Memorandum Ruling (RMR)'No. 2-2002 dated June 10, 2002. shall comply with the rule that cash and'other cash items will be excluded from the 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 computation of the adjusted basis of the properties transferred for purposes of The substituted basis of the properties transferred by SMYAC to SMYPC

the assets transferred by SMYAC to SMYPC, based on SMYAC's audited financial statements as of June 30, 2019 shall be as follows: Accordingly, the allocated shares and liabilities, and the substituted basis of

Equivalents Receivables Cash and Cash Trade and Other Assets Amount (in Php) Liabilities Allocated Allocated Shares Basis (in Php) Substituted

Inventories Prepaid expenses and other current assets Investment in

Property. plant and an Associate

equipment - net Right-of-use assets- net Other noncurrent assets

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San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Asia Corporation merger 5 Section 40(C)(2) & 6{(b)

Liabilities Amount (in Php) Accounts Payable and accrued expenses Loans Payable Income and other taxes payable Y Lease liabilities-current portion Current maturities of long-term debt- net of debt issue cost 1 Long-term debt- net of current maturities and debt issue cost Lease liabilities- net of current portion Retirement liability- net Deferred tax liabilities- net TOTAL

2 The transfer of assets/properties of SMYAC to SMYPC as a consequence of

as amended. The transfer of assets/properties to effectuate a merger is not made in the the merger is exempt from VAT pursuant to Section 109 (X) of the Tax Code of 1997. course of business but by operation of law pursuant to the merger.

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

assets since the transaction is purely for legitimate business purpose. Thus, the donate, and the transaction is a bonafide merger effected solely for business reasons. aforesaid merger will not be subject to donor's tax since there is no intention to Clearly, there is no intention on the part of SMYAC to donate to SMYPC their

under Section 199 (m) of the Tax Code, as amended, in relation to Section 40 (C) (2) of the Tax Code, as amended. (BIR Ruling No. 100-2017 dated March 2, 2017) 4 No DST is due on the transfer of assets made pursuant to the Plan of Merger

shares, should be treated as a single and continuing transaction subject only to one DST. The Court held, as follows: Internal Revenue (C.T.A. Case No. 6477 dated April 20, 2003), the Court stated that all the integral parts of the merger including the surrender of shares in exchange for In the case of Pilipinas Shell Petroleum Corporation vs. Commissioner of

property is not a transaction separate and distinct from the liabilities, etc.) should be treated as a single and continuing transaction subject only to one DST. The transfer of real shares of stock to the stockholders of the absorbed corporation in exchange for the shares surrendered by the transactions which are an integral and inherent part of the merger, such as the absorption of real property, should no in exchange for shares, transfer of assets, assumption of because it is really imposed on the privilege to enter into a transaction. Its imposition, therefore, should be only once. i.e., the issuance by the surviving corporation of its own shareholders of the absorbed corporation. longer be subject to another round of DST. In other words, all the integral parts of the merger (e.g., surrender of shares "As earlier stated, DST is in the nature of an excise tax And in a statutory merger, there is only one transaction. All other

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San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Asia Corporation merger Section 40(C)(2) & 6(b)

initial transaction which"was previously consummated." merger but an integral part or a mere continuation of the

thereof, shall be imposed on the original issuance of 'shares by SMYPC to'the However, DST at the rate of P2.00 on each P200 par value, or fractional part

stockholders of SMYAC as a consequence of the merger as provided under Section 174 of the Tax Code, as amended.

part of the assets to be transferred by SMYAC as of the effective date of the merger, excess CWT may be utilized by the latter. (BIR Ruling No. 100-2017 dated March 2, shall be transferred to and vested in SMYPC, as the surviving corporation, and such 2017 Any excess and unutilized creditable withholding taxes (CWT), which form

merger between SMYAC and SMYPC does not cover the'NOLCO of the former. that can be transferred and absorbed by the Surviving Corporation, SMYPC, as this privilege or deduction can be availed of by SMYAC only. " Accordingly, the tax-free by Revenue Regulations No. 14-2001, of SMYAC, if any, is not one of their assets (NOLCO) under Section 34(D) (3) of the Tax Code, as amended, and as implemented 5 It is to be emphasized, however, that the net operating loss carry-over

credited against the normal income tax due of SMYPC for the three (3) immediately SMYAC, as of the effective date of the merger, if any, shall be carried forward and The excess and unexpired minimum corporate income tax (MCIT) of

succeeding taxable years pursuant to Section 27(E)(2) of the Tax Code, as amended; and

The retained earnings of SMYAC are subiect to the ten percent (10%) final withholding tax on dividends constructively received by its individual shareholders pursuant to Section 24 (B) (2) of the Tax Code, as amended. (BIR Ruling No. 1422-18 dated December 7, 2018)

under Section 40 (C) (2) and (6) (b) of the Tax Code of 1997, as amended, the parties In order that the above-described reorganization can be considered as merger

to the merger should comply with the following requirements set forth under Revenue Regulations No. 18-2001 :

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 and appearing upon the official records of the corporation. Each corporation, which is a party to the reorganization, shall file, as part of

in connection with the reorganization, including: 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

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 all distribution of other disposition made thereof. The amount of each kind of stock or

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San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Asia Corporation merger

securities and other property received shall be stated on the basis of the fair market value thereof at the date of the exchange;

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 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:

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.

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

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

Corporation shall record in their respective books of accounts the mandatory accounting entries stated in Annex "A" hereof, pursuant to Revenue Memorandum Order (RMO) No. 17-2016. Moreover, the shareholders of the Absorbed Corporation and the Surviving

date the merger was executed, the original or historical cost of acquisition of the 269 or 275, as the case may be, of the Tax Code of 1997, as amended. 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 Register of Deeds or by the Corporate Secretary of this condition shall be penalized under Section Certificates of Title (TCT) and Certificates of Stock of the properties transferred, the Furthermore, the parties shall cause to annotate at the back of the Transfer

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San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Asia Corporation merger Section 40(C)(2) & 6(b)

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Bureau of Internal Revenue, proof of annotation of the substituted basis of the shares of stock and/or real properties involved in the transfer within ninety (90) days from provided in Section 275 of the Tax Code of 1997, as amended. receipt of this ruling. Finally, the parties are required to submit to the Law and Legislative Division. Violation of this requirement is subject to the penalties

However, 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.

Very truly yours,

3* K- Commissioner of Internal Revenue Je0wva CAESAR R. DULAY 047206

PROFORMA ENTRIES - MERGER Annex "A"

Particulars (The entryfies shall be per individuat shareholder of the absorbed corporation) Individual Shareholders' Book Transferee' s Book

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

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

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

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

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

OR OR 1)[Net Capical Gains Tax 2} [Stock Transaction Tax Stock Transaction Tax Net Capital Gains Tax If subsequent sale/s of investment's was/were made before January I, 2018. the tax rates used in the computation of Ne Capital Gains Tax and Stock Total Tax Payable Transaction Tax at the time of tax-free exchange shall apply Tai Ty pe 5% on P100,000 and 10% on excess 6/10 of 1% Tax Rate* 12 of 1% L [Selting Price of investment at the FMV of tnvis at on subsequent subsequent sale the time of TFE Muliply By Gains realized Gains realized time of ON TFE Sale of ment Araount XXX. XX XX.XX *Gain on sale of property/ies is subject to Normal Corporate income Tax (NCIT) OR {Stock Transaction Tax 2 3 [Withholding Tax ONETT Tox (DST) Value-Added Tax NAT} Documentary Stamp Net Capitai Gains Tax Total Tax Payable Total Tar Payable Tax Type Tat Ty pe 1.5% to 6% per RR No. 6] 1.5% for every P1.,000 and fractional part 6/10 of 1% Tar Rate* thereof Rate 2001 L L Selling Price of investment at the subsequent salc Multiply By Subsequent sale : Gains reatized Fait Market Value(FMV) of Multiply By on subsequent the propertyfies At the time of investment's Sale of time of ttansfer Amount Amount XXX. X BA HX x 333 XXX.Xx

Computation of Gzin Realised on Subsequent Sate of Investment: Selling Price Net Capital Gain on sale of unlisted shares Less: Cost (Substituted Basis) XX. XX x K *FMV at the time of subscquent sale / transfer refers to the selling price, zonat value or the value reflected in the lax declaration, whichever is highest.

Per RMO17-2016.the substiluled basis of the stock or securitie () the amount treated as dividend of the sharcholder, if any, and received by the transferor on a tax-frec exchange shall be as follows: (i) The original basis of the pfoperty, stock or securities fair market value of the other property received., if any: (3)Plus: {b} the amount of any gain that was recognized on the exchange to be transferred; (2) Less: (a) money received, if any. and (b) the if any.