BIR Ruling No. 370-2021

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE Quezon City

BIR Ruling No.377-19 Sections 28(B)(5)(c),40(C)(2) & Regalations No. 18-01 40(C)(6)(c), C Tax 3 7 - 2021 Code; Revenue

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GATMAYTAN YAP PATACSIL GUTIERREZ & PROTACIO

Salcedo Village, Makati City 1227 30/F 88 Corporate Center, Sedenio cor. Valero Streets.

Attention: ATTY. ROXANNE B. TADIOUE ATTY.ANTHONY MARK A GUTIERREZ ATTY. KENNETH O. RAYMUNDO ATTY. JILLIENNE GRACE M. SOTTO

Gentlemen:

This refers to your request on behalf of your client, Sanofi S.A. ("Sanoff"); for confirmation that the transfer of Eight Million Four Hundred Eleven Thousand Five Hundred Seventy-Five (8,411,575) shares in Sanofi-Aventis Philippines, Inc. ("SAPI"), inclusive of twelve (12) nominee shares (the "SAPI Shares"), by Sanofi to Sanofi Foreign Participations B.V. ("SFP BV") pursuant to the worldwide corporate reorganization of the Sanofi Group is exempt from capital gains tax ("CGT").

Background

1. Sanofi (TIN: and by virtue of the laws of France with registered office address at 54 rue La Boftie, with operations in eighty-nine (89) countries including the Philippines. 75008 Paris. It is the ultimate parent entity of the Sanofi Group, a worldwide enterprise :) is a corporation duly organized and existing under

2. SFP BV (TIN: is a corporation duly organized and existing under

and by virtue of the laws of the Netherlands with registered office address at Prins Bernhardplein 200 1097JB Amsterdam. It is 100% owned by Sanofi.

3. SAPI (TIN: by virtue of the laws of the Philippines with registered office address at 21st, 22nd. and 23rd Floors, One World Place Corporate Offices, 32nd Street, Bonifacio Global City. outstanding capital stock of SAPI and, based on the records of SAPI, are currently Taguig City; Philippines. The SAPI Shares represent 100% of the issued and ) is a corporation duly organized and existing under and

registered in the name of Sanofi Aventis Europe ("SAE")

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4. In.2018, SAE was dissolved withoui iiquidation of its assets. Sanofi, as sole

shareholder of SAE, absorbed all of SAE's assets via a merger-type transfer, which assets included the SAPI Shares (the "Step i Transfer"). The dissolution without liquidation of SAE was done in accordance with the legal restructuring project being implemented by the Sanofi Gi:!p, which entailed the worldwide corporate reorganization of its member companies in order to rationalize and simplify its ownership structure. In addition to SAE, several French subsidiaries were also effectively merged by Sanofi.

5. Currently, the Sanofi Group is implementing the second stage of its legal restructuring

project in line with its ultimate goal of consolidating ownership of all French Subsidiaries into Sanofi Aventis Participations, a French company, and of all foreign subsidiaries, including SAPI, into SFP BV.

6. On July 16, 2019, in connection with the second stage of the legal restructuring

project, Sanofi entered into a global shares transfer agreement (the "Global Tran'sfer Agreement") with SFP BV for the transfer of shares issued by various companies

of One Hundred Pesos (PhP100.00) each, to SFP BV in exchange for with Sanofi Group held by Sanofi. including the ) SAPI Shares with a nominal value

shares of SFP BV with a nominal value of EUR 0.01 each (the "Step 2 Transfer?).

7. The documentary stamp tax ("DST") due on the Step 2 Transfer under Section 175 of

the National Interna! Revenue Code of 1997, as amended ("Tax Code"), was paid on August 5, 2019. The CGT return, wherein Sanofi indicated that it intends to avail of an exemption from CGT, was filed also on August 5, 2019.

In reply, please be informed as follows:

CGTIncome Tax

is well-settled. Section 40(C)(2) of the Tax Code does not make any qualification or distinction The application of Section 40(C)(2) of the Tax Code to nonresident foreign corporations

as to its application to a corporation. It provides that --

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

XXX XXX XXX

(C) Exchange of Property.

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(2) Exception. - No gain or loss snali be recognized on a corporation or on its stock in pursuance of a plan of reorganization solely for stock or securities in another corporation that is a party to the reorganization. or securities if such corporation is a party to a reorganization and exchanges property

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XXX XXX XXX

four (4) persons gains control of the said corporation: Provided, that stock issued for services shall not be considered as issted in return for property. No gain or loss shall also be recognized ij property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange such person, alone or together with others, not exceeding

property received is substantially a continuation of the old investment still unliquidated.1 The underlying assumption of tax-free exchange provisions generally is that the hew

Based on the foregoing, and considering that Sanofi continues to own the entire capital stock of SFP BV after the exchange, the transfer of the SAPI Shares from Sanofi to SFP|BV qualifies as a tax-free exchange transaction.

Accordingly, no gain or loss shall be recognized on the transfer of the SAPI Shares by. Sanofi to SFP BV in exchange for the ( shares of stock of the latter.

or loss from a subsequent transaction of the properties or of the stocks involved in the exchange. merely defers recognition of the gain or loss from such transaction, for in determining the gain the original or historical cost of the properties or stocks is considered. Thus, if the transferor However, it is to be emphasized that Sections 40(C)(2) and 40(C)(6)(c) of the Tax Code

later sells or exchanges the shares of stock it acquired in the exchange, it shall be subject to

basis of the shares shall be the same as the original acquisition cost or adjusted cost basis to the income tax on gains derived from such sale or exchange, taking into consideration that the cost

transferor of the property exchanged therefore; and that the cost basis to the transferee of the property exchanged or stocks shall be the same as it would be in the hands of the transferor.?

Donor's Tax

are: (1) the donor must have the capacity to make the donation; (2) the intent to do an act of liberality (animus donandi); (3) actuat or construetive delivery of the gift; and (4) acceptance Well-settled in our jurisprudence is the fact that the essential elements of a valid donation

or consent to the donation.

transaction is purely for a legitimate business purpose of corporate restructuring. Applied in this case, it is clear that the element of intention to donate is absent since the

Under the Section 29 of the Republic Act No. 10963 or the Tax Reform for Acceleration

(i.e. a transaction that is bona fide, at arm's length and free from any donative intent) is considered as made for an adequate and full consideration in money or money's worth, and. 2018, a sale, exchange or other transfer of property made in the ordinary course of business therefore, not subject to donor's tax. and Inclusion Law ("TRAIN Law"), amending Section 100 of the Tax Code, as of 1 January

2 Section 40(C)(5), Tax Code. BIR Ruling No. 024-05 dated 23 December 2005.

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Considering that the transaction is for a legitimate business purpose and made in the

ordinary course of business, the same is not subject to donor's tax.

Cost Basis

Section 40(C)(5)(a) and (b) of the Tax Code states:

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

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(C) Exchange of Property.

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(5) Basis. -

(a) The basis of the stock or securities received by the transferor upon the exchange specified in the above exception shall be the same as the basis of the property, stock or

securities exchanged, decreased 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 and (b) the amount of any gain that was recognized on the exchange: Provided, That the property received as "boot' shall have as basis its fair

market value: Provided, further, That if as part of the consideration to the transferor,

the transferee of the property assumes a liability of the transferor or acquires from the

latter property subject to a liability, such assumption or acquisition (in the amount of

the liability) shall, for purposes of this paragraph, h treated as money received by the

transferor on the exchange: Provided, finally, That if the transferor receives several

kinds of stock or securities, the Commissioner is hereby authorized to allocate the basis

among the several classes of stocks or securities.

(b) The basis of the property trarsferred if the hands of the transferee shall be the same

as it would be in the hands of the transferor increased by the amount of the gain

recognized to the transferor on the transfer. "

Indubitably, the basis of the SFP BV shares received by Sanofi upon exchange shall be

the same as the basis of the SAPI Shares exchanged; and the basis of the SAPI Shares

transferred shall be the same as it would be in the hands of Sanofi.

Strict compliance of reguirements to avail non-recognition of gains provided for in Sections 40(C)(2) and 40(C)(6)(c) of the Tax Code

In order that the parties to the exchange can avail of the non-recognition of gains provided

for in Sections 40(C)(2) and 40(C)(6)(c) of the Tax Code, they shouid comply withi the

requirements hereunder mentioned

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The parties shall, pursuant to Sectisn 58(E) of the Tax Code and Revenue Regulations No. 18-01,3 cause the corporate secretary tr. annotate at the back of the relevant certificates of

stock the date the related deed of assignr -ent was executed, the original or historical cost of

acquisition of the shares of stock involved, and tie fact that no gain or loss was recognized as a result of such exchange; provided, however, that any violation of the corporate secretary of this condition shall be penalized under Section 269 of the Tax Code.

It is further required that the certificate of shares of stock that bears the annotatioh of substituted bases of the shares of stock transferred/received in connection with this transaction,

as duly certified by the corporate secretary. -hould be submitted to the Law and Legislative Division, Bureau of Internal Revenue, 7/F National Office Building, Diliman, Quezon City within ninety (90) days from the date of the receipt of this Certification, by any of the parties

to the exchange transaction. Otherwise, this ruling shall be void and without effect, and the

Chief, Law and Legislative Division shall refer the docket of the case to the Prosecution

Division for appropriate action.

This ruling is issued on the basis of the foregoing facts as represented. However, if upon

investigation it shall be disclosed that the facts are different, then this ruling shall be considered

null and void.

Very truly yours

u

CAESAR R. DULAY Commissioner of Internal Revenue

046113

K-1

of Property for Shares under Section 40(C)(2) of the Nationai internat Revenue Code of 1997, Prescribing the Penalties for Failure to Comply with such Guidelines, and'Aut.rizing i:: Imp.osition of Fees for the Monitoring Thereof, 13 November 221 3 Guidelines on the Monitoring of the Basis of Property Trs..-ferred and Shares Received, Pursuant to a Tax-Free Exchange