BIR Ruling No. 338-2022

REPUHLICOFTHE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sec.28B5c,40C&6c

B[R Ruling No.377-19 Tax Code of 1997,as amended

BR Ruling No.DA-150-00

T-338-2022 JUN 30 2022

QUISUMBING TORFES 12th Floor. Net One Cen

Crescent Park West.Bo if:eio Global City 26th Street corner 3 An

1634Taguig City

AttentionAy.Dennis G.Dimgiba Atty.Jose Jaime V.Cruz

Gentiemen:

This refers to vo1I-tter dated March 19.2020 requestirg on behalf of your client,Infinera International Corpora eInfinera for confirmation that the transfer of the shares of capital stock of Coriant Philippi e Inc. [formerly Tellabs Philippines. Inc.]("Coriant Ph) from Coriant International Inc.formi Tellabs International.Inc.lCoriant US to Infinera,pursuant to an

imposed under Section offshore merger betwee B5cof the NationalInternal Revenue Code of 1997(Tax Code oriant US and Infinera. is not subject to the capital gains tax (CGT

as amended.

Background

Infinera is a coo ation duly organized and registered under the laws of the State of Delaware,United State o.America (USA.with principal office at 160 Greentree Drive.Suite 101 Dover Delaware 19 0-. United States.

Coriant US was c rporation duly organized and registered under the laws of the State of Illinois,United States of erica.Coriant US was the legal and beneficial owner of 106.955 shares and beneficial owner of i (5)shares in Coriant Ph.which rerresent 100% of the total subscribed capital stock of Coriant h

Effective Decer be 31.2019.Infinera and Coriant US merged,with Infinera as the surviving corporation. -s consequence of the merger, the shares of the capital stock of Coriant Ph were transferred fror ( oriant US to Infinera by operation of law.

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In reply thereto.e se be informed as follows:

Income Tax/CGT

or distinction as to its a -plication to a corporation. Thus, its application to non-resident foreign corporation is well-settle iIt provides Section 40 (C)(2 ar d 6 (b) of the Tax Code, as amended, does not make any qualification

"SEC. 40. Deter nf ation of Amount and Recognition cf Gain or Loss.

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(C) Exchange ot P+ operty.

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2) Exception. -- gain or loss shall be recognized if in pursuance of a plan of merger or ct s-tidarion

c A corpo ai on, which is a party to a merger or consolidation, exchanges property st ely for stock in a corporation, which is a party to the merger or const ic.ition cr

(b) A shareo.ter exchanges siock in a corporaiion, which is a party to the mergerronsolidation, solely for the stock of another corporation also a party:e merger or consolidation; or

(c) A secur. y holder of a corporation, which is a party to the merger or stock o. s.curities in such corporation. a party to the merger or consolia ai m. exchanges his securities in such corporation, solely for consolic. t' n.

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(6) Definitions.

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b) The terr erger' or 'consolidation': when used in this Section, shall be ariother o poration solely for stock: Provided, That for a transaction to underst1o meanihe ordinary merger or consolidationorii the acquisit or by one corporation of all or subsicntially all the properties of

BIR Ruling No.377-2C19 da =d uly5,2019

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each an e ery step of the transaction shall be considered and the whole solely f r the purpose of escaping the burden of taxation: Provided. further. Th it in determring whether a bona fide business purpose exists be rega d. d as a merger or consolidation within the purview of this Section, ir ust be undertaken for a bona fide business purpose and not transac:o: Provide nally That in determining whether the property transferred or series of transactions shall be treated as a single unit.

constitu ?si substantial portion of the property of the transferor,the term 'propert 'hall be taker to include the cash assets of the transferor.'

qualification or distincti. ns to its application to a corporation It provides that: corporation is well-settl d. Section 40 C2 of the Tax Code,as amended,does not make any The plication f ection 40 (C)2 of the Tax Code,as amended, to nonresident foreign

shall not be cons i. -ed as issued in return for property." or maintains con -c of said corporation: Provided, That stocks issued for services persons, in exch -n e for stock or unit of participation in such a corporation of corporation by p rson, alone-or iogether with others, not exceeding four (4) which as a resuli of-uch exchange the transferor or trunsferors, collectively, gains "No gain 0: loss shall also be recognized if property is transferred to a

the CGT imposed under 3etion 28 (B5(c of the Tax Code. as amended. of tax-free exchange pr isions generaly is that the new property received is substantially a continuation of the old stment still unliquidated.3 Hence.a merger does not involve a sale exchange or dispositior c. shares. Therefore. the transfer of the shares of capital stock of Coriant Ph fom Corian L3 (absorbed corporation to Infinera surviving corporation pursuant to a merger effected in fcrdance with the laws of the State of Delaware, USA is not subject to absorbed corporation an rerely carries on the identity of the latter.2 The underlying assumption In a merger, the s :r iving absorbing corporation succeeds to the rights and liabilities of the

is a merger within the c. n:mplation of Section 40 (C)(2), in relation to 40 (C)(6)(b) of the Tax Such merger is bein purpose of escaping the otden of taxation. Thus, it qualifies for non-recognition of gain or loss for income tax purpose Code.as amended.beca immediately vest in Infi: management to consol interests owned by Cori: nt Applying the ab se-quoted provisions in this case, the merger of Infinera and Coriant US S :s: upon the effective date of the merger, all property, assets, rights and Iertaken for a bona fide business purpose as a matter of strategic JS shall, in accordance with the Delaware General Corporation Law 0OP Subie ership in the companies assets and liabilities and not for the ct to ang liabilities, charges,d bts and provisos attached thereto. with Section 40C2of the Tax Code.as amended,and

Infinera. on its receipt o: tf : Coriant US shares pursuant to and as a consequence of the merger. that no gain or loss shi liabilities. to Infinera pu 0T0 recoonizechy 3 erger. Coriant US, as he transferor of all its assets and Likewise, no gain or loss shall be recognized by

2 BIR Ruling No.UN-397-95c te Cctober 14,1935 citing Cashman vs.Brcwnlee27 N.E.560 BIR Ruling No.024-05dateD=embe23,2005

Of Quisumbing TorresInfineaternational Corporation) Page 4 of s

Cost Basis

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

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

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(C) Exchange of r nerty.

XXX Xxx X Xx

(5 Bsi

() The basi (."the stock or securities received hy the transferor upon the

of the proprty stock or securiries exchanged,decreased by(l) the money receivec exchang " secified in the above exception shall be the same as the basis a d (2) the fair market value of the other property received, and increase and (b) (a)the umount treated as dividend of the shareholder amount of any gain that was recognized on the exchange: Provide hat the property received asboot'shall have as basis its fair market il.: Provided, further. That if as part of the consideration to the transfera r. or acauie -he transferee of property assumes a liability of the transferor from the later property subject to a liability, such assumption or acqu -it on (in the amount of the liability) shall, for purposes of this paragra h be treated as money received by the transferor on the exchang : Provided, finally, That if the transferor receives several kinds of stock r securities, the Commissioner is hereby authorized to allocate the basi. u zong the several classes of stocks or securities.

(b) The bas(f the property transferred in the hands of the transferee shall

be the se n. as it would be in the hands of the transferor increased by the amount f!'re gain recognized to the transferer on the transfer.

Indubitably the t is's of the Corisnt Ph shares in the hands of the transferee Infinerashall be the same as it would e in the hands ef the transferor (Cor.ant US) increased by the amount of the gain, if any. recogniz sd ro the transferor on the transfer.

Value-Added Tax (VAT

Section 105 of thTx Code.as amended. reads

sells. barters. ex h nges, leases goods or properties, renders services, and any "SEC. 105. Pers Licble. -Ay person who, in the pourse of trade or business.

C

O-

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person who inp or's goods shall be suhject to the value-added tax (AT) imposed in Sections 106 o 108 of this Code.

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The phrase 'in ire ourse of trade or husiness'means tie regular conduct or pursuit of a commercia or an economic activin: including transactions incidental thereto. by am' person ieg urdless of whether or not the person engaged therein is a non- stock. non-proi t private organization (irrespective of the disposition of its net income and wlail er or not ir sells exclusively to members or their guests. or government ent

In view thereof. th. transfer of the Coriant Ph shares as a consequence of the merger is not

Ph shares to effectuate a merger is not made in the course of business but by operation of law pursuant to the merger subject to VAT pursuant to Section 105 of the Tax Code,as amended.The transfer of the Coriant

Donor's Tax

are: (l) the reduction o~the patrimony of the donor: (2) the increase in the patrimony of the donee: Well-settled inou jurisprudence is the fact that the essential elements of a valid donation

and. (3) the intent to d ar act of liberality (animus donandi.

Clearly. there i: no intention on the part of any of the parties to the merger - Coriant US to donate to Infinera its Coriant Ph shares since the transacticn is purely for a legitimate business purpose. Thus. the mer ger will not be subject to donor's tax since there is no intention to donate and the transaction is a ho a fide merger effected solely for business reasons.

Documentary Stamp I x

implemented by Reven te Regulations (RR) No. 13-2004. states as follows: Section 199(m f the Tax Code. as amended by Republic Act (RA) No.9243 and as

prorisions of Se tion l73 to the contrary nonvithstanding. the following instruments. do urents and pupers shall be exempt from documentary stamp tax: "SEC. 119 Documents and Papers Not Subject to Stamp Tax.- The

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Internal Rerem Code of 1997as amended. (m Tru isier of property pursuant to Section 40(c2 of the National

for cancellation pursua' t I the merger. Thus.no DST is due on the surrender byCoriant US shareholders of their Coriant Ph shares

o -3-2022

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taxing jurisdiction. Sect or 1 73 of the Tax Code. as amended, only imposes DST on obligations or rights arising from Pl li pine sources or property situated in the Philippines. Original issues, still, the : ha es of stock issued by Infinera is not subject to DST on original issuance of shares under Sectior !4 of the Tax Code, as amended, because Infinera is a corporation organized and existing in er the laws of Delaware, USA,therefore,not within the Philippine of property is subject t L ST due under Section 174 of the Tax Code,as amended,if they are Also, while Secti on 9 of RR No. 13-2004 states that the shares of stocks issued in exchange

and (6)(c) of the Tax c 1e Strict compliance of ret uit-ements to avail non-recognitio r of gains provided for in Sectior 4C2)

for in Section 40 (C)(2)of he Tax Code; as amended, they should comply with the requirements hereunder mentioned. In order that the ar ies to the exchange can avail of the non-recognition of gains provided

penalized under Section 2? " of the Tax Code, as amended. Certificates of Stock the la the merger was executed,the original or historical cost of acquisition of the shares of stock in s! ed,and the fact that no gain or loss was recognized as a result of such merger provided hower r.that any violation by the Corporate Secretary of this condition shall be The parties shall a se the Corporate Secretary of Coriant Ph to annotate at the back of the

shall refer the docket of h case to the Prosecution Division fo appropriate action. bases of the shares of tc k transferred/received in connection with this transaction, as duly certified by the Corporr e 3ecretary, should be submitted to the Law and Legislative Division Bureau of Intenal Reve u,7/F National Office Building,Di imanQuezon City within ninety 90 days from the date c the receipt of this Ruling, by any of the parties to the transaction. Otherwise.this ruling sh ll e void and without effect,and the Chief, Law and Legislative Division It is further requ re that the Certificate of Stock that bears the annotation of substituted

considered null and voic upon investigation, it ul1 be ascertained that the facts are different, then this ruling shall be This ruling is be ig issued on the basis of the foregoing facts as represented. However. if

Very truly yours.

Mawa

K- Comrnissioner of Internal Revenue CAESARR.DULAY 052196