BIR Ruling No. 330-2021

REPUBLIC OF THE PHILITPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

10-330 JEr Section 40((}2) and (6)(h). BIR Ruling No. 075-18 1 414 Tax Code

MARTINEZ VERGARA GONZALEZ & SERRANO 33rd Floor. The Orient Square F. Ortigas. Jr. Road. Ortigas Center 1600 Pasig City. Metro Manila

Attention: Elmer B. Serrano Joanness S. Batimana Phil Ivan A. Chan

Gentlemen:

referred to as the "Absorbed or Constituent Corporations"). is a tax-free transfer/exchange Development Corporation ("CEIDC"). Fort Bonifacio Medical Center, Inc. ("FBMCI") Ceres Holdings Inc. ("CHI") and Ceres Property Venture, Inc. ("CPVI"). (collectively Revenue Code of 1997. as amended (Tax Code). Equities, Inc. ("CEI or the Surviving Corporation"), CEI Properties, Inc. (CEIPI). CEI pursuant to Section 40(C)(2). in relation to Section 40(C)(6)(b). of the National Internal This refers to your request for confirmation of your opinion that the merger of Crown

Background:

Constituent Corporations. the merger will take effect on August 18. 2014. the date of the SEC approval by the SEC of the Constituent Corporations' Articles of the Merger and its issuance of the Certificate of Merger. Accordingly, pursuant to the agreement between CEI and the approval of the Plan and Articles of Merger. Plan of Merger and the Articles of Merger of the Surviving Corporation and the'Constituent Corporations. Under the approved Plan of Merger. the merger shall become effective upon the On August 18, 2014, the Securities and Exchange Commission (SEC) approved the

Nos. before the approval of merger: Were likewise domestic corporations with the tollowing TIN and SEC Registration CFI is a domestic corporation. with Taxpaver Identification Number (TIN) andSEc Registration No. The Constituent Corporations

Name of Corporation CEIDC FBMCI CEIPI CPV CHI TIN SEC Registration Number

and issued shares. the par value of each share and the total paid up capital of the Surviv ing Corporation and the Constituent Corporations are as follows: Prior to the merger, the respective authorized capital stock. total number of outstanding

Q

CROW'N EQUITIES. INC. 40M-37-2921 SEF 1

CEI

Authorized Capital Stock Subscribed Capital Stock Number of Shares (common) common (at f0.10 par value per share) P 8 Amount

Paid-Up Capital *excluding 40 shared held in the treasury 'common) P

CEIPI

Subscribed Capital Stock Paid-Up Capital Authorized Capital Stock Number of Shares (at Pl.00 par value per share) Amount

CEIDC

Subscribed Capital Stock Authorized Capital Stock Number of Shares nnn (at Pl.00 par val R Amount hare)

Paid-Up Capital

FBMCI

Subscribed Capital Stock Paid-Up Capital Authorized Capital Stock Number of Shares (at P1.00 par value per share) Amount 0 U

CHI

Paid-Up Capital Subscribed Capital Stock Authorized Capital Stock Number of Shares I(common) (common) common) (at P1.00 par value per share) Amount

CPVI

Paid-Up Capital Subscribed Capital Stock Authorized Capital Stock] Number of Shares (at P1.00 par value per share) Amount

respective stockholders"on May 6."'2014. The merger was effected for the following business reasons: (i) the merger will streamline the operations of the Surviving Corporation and the its assets more productively. and the Constituent Corporations approved the Articies of Merger. which were ratified by their Constituent Corporations: and (ii) the merger will enable the Surviving Corporation to utilize On February 25, 2014. the respective Board of Directors of the Surviving Corporation

Constituent Corporations shall be cancelled. and a total of Article V of the Plan of Merger provides that all the shares of the capital stock of the shares of the

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S+CM-I5U.2OL1

CROW'N EQUITIES, INC. SEF14:028

Surviving Corporation. with a par value of Ten centavos (P0.10) per share. shali be issued in exchange of the cancelled shares. As the Surviving Corporation directly and indirectfy owns the Constituent Corporations. the net assets of the Constituent Corporations will be added to the assets of the Surviving Corporation.

On August 18. 2014. the SEC approved the Plan of Merger and the Articles of Merger of the Surviving Corporation and the Constituent Corporations. On September 4. 2014. the Survivina Cornoration paid shares in favor of the Constituent Corporations. in documentary stamp taxes on the issuance of

Section 40(C)(2) of the Tax Code and. thus, no capital gains tax (CGT). creditable withholding tax (CWT). donor's tax. value-added tax (VAT) and documentary stamp tax (DST) shall be Surviving Corporation and the Constituent Corporations involves a tax-free exchange under due on the said transfer. In view of the foregoing. you now request for confirmation that the merger between the

In reply, please be informed as follows:

escaping the burden of taxation. because CEI's acquisition/assumption' of all the assets and liabilities` of the Constituent Corporations is being undertaken for a bona fide business purpose and not for the purpose of the contemplation of Section 40 (C)(2) in relation to Section 40 (C)(6)(b) of the Tax Code 1. The foregoing merger of the CEI and the Constituent Corporations is a merger within

Accordingly. no gain or loss shall be recognized by CEI. as the transferee. on its receipt of the assets and liabilities of the Constituent Corporations pursuant to and as a consequence of the merger. gain or loss for income tax purposes in accordance with Section 40(C)(2) of the Tax Code. The merger of the Constituent Corporations and CEI qualifies for non-recognition of

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 Corporations upon the exchange shall be the same as the basis of the properties. stocks or shareholders and (b) the amount of any gain that was recognized in the exchange. The basis of the shares of stocks to be received by shareholders of the Constituent

transfer.. same as it would be in the hands of the transferors (Constituent Corporations) increased by the amount of the gain. if any. recognized to the transferors (Constituent Corporations) on the The basis of the propertv transferred in the hands of the transferee (CEI) shall be the

capital asset or of property which is not a capital asset. as the case may be. property is subject exceed the total of the adjusted basis of the property transferred pursuant to such exchange. then such excess shall be considered as a gain from the sale or exchange of a If the amount of the liabilities assumed plus the amount of the liabilities to which the

basis of the property transferred, pursuant to No. IV(A)(2) of Revenue Memorandum Ruling CEI 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 (RMR) No. 2-2002 dated June 10' 2002. whether liabilities assumed and to which the property is subject do not'exceed the adiusted The substituted bases of the properties transferred by the Constituent Corporations to

Corporations shall be as follows: Accordingly. the substituted basis of the properties transferred by the Constituent

3 Sec. 40(C)(4)(b}_supra 1 Sec. 40 (C)(5)(a) of the Tax Code Sec. 40 (C)(5)(b).supra

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CROWN EQUITIES, INC. 4)-534-221 SEF

CEIPI Assets as of December 31, Financial Asset Current Asset- AFS 2013 Amount Liabilities Allocated Allocated Shares Substituted Basis

Totai Receivables Noncurrent Asset-

Total Deposit for future stock subscription Due to parent company Liabilities Amount

FBMCI

Total Investment in an associate Other Noncurrent Assets Assets as of December 31, 2013 Amount Liabilities Allocated Allocated Shares Substituted Basis

Total Due to parent company Deposit for future stock subscription Accrued expenses and other noncurrent liabilities Liabilities Amount

CPVI

L portion Real estate inventoriess. current assets Installment contract Cash and cash equivalents Installment contract receivables receivables-net of current Receivables-net Prepaid expenses and other Assets5 as of December 31, 2013 Amount Liabilities Allocated Allocated Shares Suhstituted Basis

Investment properties-net? Investment in a subsidiary.8 net Other noncurrent assets Total Property and equipment-

1 Consist of condominium units and parking stots in Cypress Towers in Taguig City. 7 Consist of parcels of land in Taguig City and a conrmercial space in Cypress Towers. Taguig City. 5 Inching real nroperties covered by TCT Nos. * Consist of shares of stocks in Crown Central Properties Corp. : The excess of the liabilities over the adjusted bases of the assets transferred ( subject to applicable capital gains tax or regular income tax depending on the ciassincation of the assets (ordinary or capital). of CPVI. and " based on the Sworn certification dated Nov emher 29. 2016 executed by Christopher Brian C. Dy. Treasurer shall be considered gains

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54-: 3- 1 CROW'N EQUITIES. INC. SEP I 4 1

Retirement liability Total Accounts payable and accrued expenses Liabilities Amount

CHI

Other Noncurrent Assets Total AFS Financial Assets Assets as of December 31, 2013 Amount Liabilities Allocated Allocated Shares Suhstituted Basis

Total Deposit for future stock subscription Due to parent companyi Liabilities Amount

CEIDC

Investment in property: Total Receivables Real estate inventories Other current assets portion Cash Installment contracts receivable Installment contracts receivable- net of current Assets1 as of December 31, 2013 Amount O Liabilities Allocated C Allocated Shares Substituted Basis

Income tax payable Total Accounts payable and accrued expenses Due to parent company Deposit for future stock subscription Liabilities Amount

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

transaction is a bona fide merger effected solely for business reasons. CEI their assets since the transaction is purely for legitimate business purpose. Thus the aforesaid merger will not be subject to gift tax since there is no intention to donate. and the Clearly, there is no intention on the part of the Constituent Corporations to donate to

I Consist of parcels of land in Sto. Tomas. Batangas with a total area of 51.62 hectares. I2 The excess of the liabilities over the adj usted bases of the assets tra nsferred ( The excess of the liabitities over the adjusted hases of the assets transferred (352.388.00) shali be considered gains I" Inctuding real properties covered by TCT Nos. subject to applicable capital gains tax or regular income tax depending on the classification of the assets (ordinary or capital). executed by t hristopner Brian L . ' subject to applicable capital gains tax or regular income tax depending on the ctassification of the assets (ordinary or capital). .....urer ot .E!DC. ana pased on tne Sxorn certitication uateu ivncmber 29. 2016 .00) shall be considered gains

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KY 1 a

CROH'N EQUITIES. INC. SEg

stockholders as a consequence of the merger as provided under Section 1 74 of the Tax Code. fractional part thereof. shall be imposed on the original issuance of shares by CEI to the 40 (C)(2) of the Tax Code. However. DST at the rate of P1.0013 on each P200.00 par value. or 199 (m) of the Tax Code. as amended by Republic Act (RA) No. 9243. in relation to Section 3. No DST is due on the transfer made pursuant to the Plan of Merger under Section

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

August 18. 2014, and in the succeeding taxable years. or may be the subject of a claim for refund or issuance of a tax credit certificate (TCC). date of the merger. which form part of the assets to be transferred by the Constituent Corporations to CEI as a consequence of the merger. may be applied as a tax credit by CEI against its income tax due for the taxable year 2014. the effective date of the merger being 5. The excess and unutilized CWT of the Constituent Corporations, as of the effective

taxable years pursuant to Section 27 (E)(2) of the Tax Code. date of the merger as of year 2014 shall be carried forward and'credited against the normal income tax due of the surviving corporation. CEI. for the three (3) immediately succeeding 6. The excess and unexpired MCIT of the Constituent Corporations. as of the effective

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

and 28 (B) (5) (b) of the Tax Code. (10%) final withhofding tax on dividends constructively received by its individual shareholders and non-resident foreign corporate shareholders pursuant to Sections 24 (B) (2). 25 (A) (2) 8. The retained earnings of the absorbed corporations are subject to the ten percent

with the following requirements set forth under RR No. 18-2001 : under Section 40 (C) (2) and (6) (b) of the Tax Code. the parties to the merger should comply 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 occurred. a complete statement of all facts pertinent to the non-recognition of gain or loss in connection with the reorganization. including: parties thereto. the adoption being shown by the acts of its duly constituted responsibie 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

(l) 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 the cost or other basis of all properties. including all stocks or securities. transferred incident to the plan:

13 Old DST rate is used since the merger took place prior to the effectivity of RA No. 10963 or TRAIN I aw.

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241-3: 0- CROWN EQUITIES. INC. C 1 4 202

(3) A statement of the amount of stock or securities and other property' or distribution or other disposition made thereof. The amount of each kind money received from the exchange including a statement of ail

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: and

(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. who is a party to the reorganization. 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: who received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization shall incorporate in

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

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 subiect). in order to facilitate the

securities and other property received from the exchange. determination of gain or loss from subseguent disposition of such stock of

- shall include as a note to their respective audited financial statements for the taxable year in which the merger occurred a statement to the effect that they hold such assets/shares acquired in a merger and the year in which such merger occurred. and in the taxable years until the subject properties are subsequently transferred to another transferee. income tax returns for the taxable year in which the merger occurred a copy of the request for duly stamped received by the appropriate office of the Bureau of Internal Revenue. Such parties ruling filed with. and the corresponding ruling issued by. the Bureau of Internal Revenue. both In addition to the foregoing requirements. the parties shall enclose with their respective

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

under Section 269 or 275. as the case maybe. of the Tax Code. by the Register of Deeds or by the Corporate Secretary of this condition shall be penalized of Title (TCT) and Certificates of Stock. the date the merger 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 merger: provided however. that any violation Furthermore. the parties shall cause to annotate at the back of the Transfer Certificates

to the transaction must submit to the Law and Legisiative Division. Bureau of Internal Revenue. certified true copies by the Corporate Secretary. of duly annotated Certificates of Finally, it is required that within ninety (90) days from receipt of this ruling. the parties

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f: CROU'N EQUITIES, INC. ++

Stock. in respect of the shares of stock of the transferee corporation. including the revised allocation of'shares and re-computation of the substituted hases of the properties which shal! be in accordance with RMR No. 2-2002

if upon investigation. it will be ascertained that the fatts 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.

Ver' truly yours.

oau

K-1 Ccmrnissioner of Interna! Revenue CAESAR R. DULAY 3+ 045598 O

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+ v a-n?

ANNEX "A"

Particulars (The entry/ies shall be per individual shareho!c & of Individual Shareholder's Bcok Transferee/Survi -ing Corpcration's Book

the absorbed corporation)

Journal Entry to} Record the Tax Free Exchange Investment in (transferee's name} Iinvestment in (name of dissolving cerp Dividend Income (net of FWT on Cividend) XY X. H A<sets (as appiteable: P." . : and & Improvement +. rreal props n.esnent in tissung cerp tural Stock -+ ities Acdit.onal Paid-I Capita Sheres of steck . AYYII W x XKY AX KY XXX X

of (name of issuing corporation's) with aggregate fair r.arket s a'::-.* 1 To record the Tax-Free Exchange of investment in + share typt: : sl:are: transferee} with par value of P in exchange for (type ard ns of sh?-. per share af inar"3 Wir regae fair narket -aue of p s suined -esulting fron: mert.. in a\chanze for -tune and no of share. f Ir me of transferet' with p.r alue of P - r-cord the Tas-Free Exc~arga of real pronertes. investment in sh.t : hpe) shares of +name ." :ssung crrporatior s:. and other assets - Fer share includ:ng habtlities

Balance Sheet Notes Entry Investment includes (no and type of share's) iith par 'z:ur o covered by Stock Certificate No s of investment in (no. and type of share s) of (issuing corpore:.u s total cost of (substituted basis+ and which hava fair market va'ut r the date of exchange amounting to P P in (name of transferee } resulting from the Ta.-Free E:.:" '. Which were acquired .r- t. Wrr r-.on s). an! .her as's ".ere :cquired through inerger as apr-' ad by the Securit'es a"d Exchange C'ommission m +date: The ?!inced by Plar of Merge: and Aricles of Merger. including tre h tissting corpoator st ar' are ners presently covered hs Stock "Dta: "rgtisition co.* sltstitta- cos to (narme of transferee) of the .nves'mert s arrouris to +F'' at the time of the excharge: The rea! rit. te No s Re:l praperties. inv.stnent : rorres Iran r Certificate of Trle a-d Moch t`e wficate No s Tera Of the Authorzed :'nital Stock of .name of (ransferee- . investment s. and .the: issets were previousl covered by crs:ruing 'no and tpe of share s+ [total] : ino ard type uf share s: of tissuing issued

thwes :r the name nt nime N tarsteree b

Proforma Entries} Sale 'Transfer Subsequent to Record Cash or Accounts Receivables Gain on Sale of Investmert Investmert in (name of transferee) XX I*sment in+-m of :. I on Sale of F-per: : Accounts Re en abic Land & Innr(::emi.*: s co I Ither A sets XXN AY

To record subsequent sale transfer of investment acju:rec thr.I :a. Te r.c--rd subsequtr: sa'e traus ernfietme ed thru tax- free exchange tese'tharge

Current Y rT H x'

Tax Pavable Para5k XXX XV

Provision for Tax as follow's: for Tav a-* ows

I Net Capital Garns TRx Type Tax Pl00,001 and 10%on excess Tax Rate 30 o Gains ealtzcd n ta-ec Mutiply bi "a .tal (zins Typ (3 Rate teted on sheequert sale Yuitipt, hs I25 mti1: s Amnunt

Stock Transaction Tax I'2 cf 1^ FMV of iruastments at the in orf the tas-frec exc hen@ I33 I f sn$.'rr" salc Fent a: th. tm.

OR used in thc computation of Nct Capita: Ciains T: > and S*nck. Trr*:', n. T: If subscqucnt sale's on invcstn of the tar-free exchange shail apply Net Capital Grains Stock Trar Tax Tas 6in of I" Total Tax Pavabl I Gair.s rza[:zed on Scllre f subseaucrt ra mestmert a LET {dacd Tax{} Jding Ta {i TAT I'y pe rL '(DST) RF Ta Rat - tl pa .r i:c ictatP abi 1\\i n the: Wulripl, by 3 MV+.f th O Amount

Computation of Gain Realized on Substqun: Sa: ef Int estri.1 Sale ct'r I Li ..r!.... rTT

Selling Price Less Cost (Substituted Basis) Net Capital Gain on sale ef unlrsted chara Ie n re Toeted in t're . r3: hg :EFr I: : aluc nr th.

property, stock or securities to be transferred.2 Less( monzy rezlcd. .*:: transferor or a tax-frec exchange shall be as fllons (1} T:.. oriz:n.! t.. as dividend of the sharcholder.if an. 1ndb thaatn as Per RMO No 17-2016the 5uhstitucd bas:5 oth sto the fair market valuc of thc other properm rece:dit an:3ip:-::am+- n the exchange. if any Scc-i -s ree: