BIR Ruling No. 512-2020

100 BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

BIR Ruling No. 075-2018 the National Internal Revenue Code of 1997, as amended. Section 40(C)(2) and (6)(b) of S46M0512-2020 SEP 0 9 2020

BDO CAPITAL & INVESTMENT CORPORATION 20th Floor, South Tower BDO Corporate Center, 7899 Makati Avenue, Makati City

Attention: EDUARDO V. FRANCISCO President Gentlemen:

that the statutory merger among BDO Capital & Investment Corporation (BDO Capital), the National Internal Revenue Code (NIRC) of 1997, as amended. as the surviving corporation, with BDO Elite Savings Bank, Inc. (BDO Elite) andBanco tax-free transfer/exchange pursuant to Section 40(C)(2) in relation to Section 40(C)(6)(b) of De Oro Savings Bank, Inc. ("Banco De Oro Savings), as the absorbed corporations, is a This refers to your letter dated March 24, 2017, requesting confirmation of your opinion

Background:

corporation duly organized and existing under the laws of the Philippines having its principal place of business at the 20th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City. It is authorized to engage in and conduct business as a full-service investment Securities and Exchange Commission (SEC) Company Registration No. house. BDO Capital, with Taxpayer's Identification Number (TIN) is a and

banking corporation duly organized and existing under the laws of the Philippines having its savings and mortgage bank. the Philippines having its principalplace of business at the 14th Floor, Net Cube Center, 30th St. cor. 3rd Ave. Crescent Park, West Bonifacio Global City, Taguig City; while Banco De Registration No. Oro Savings, with TIN principal place of business at the 16th Floor, North Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City. Both are authorized to carry on and engage in the business of On the other hand, BDO Elite, with TIN -, is a banking corporation duly organized and existing under the laws of and SEC Company Registration No. and SEC Company is a

of BDO Capital, BDO Elite, and Banco De Oro Savings representing at least 2/3 of their their respective meetings held on June 27,2015 approved the Plan of Merger. The stockholders to merge the corporations into one, with BDO Capital as the surviving corporation, in order be achieved to their and their stockholders advantage and welfare, considering that the corporations all own, hold, and manage various assets for the same beneficial owner. Thus, the majority of the Board of Directors of BDO Capital, BDO Elite,and Banco De Oro Savings in that greater efficiency and economy in the management and operations of the corporations may BDO Capital, BDO Elite, and Banco De Oro Savings deemed it necessary and advisable

BDO CAPITAL&INVESTMENT CORPORATION S40n-0312-Z02 SEP 0 9 2020

outstanding capital stocks in their respective meetings held on July 22, 2015, also approved the said Plan of Merger.

Certificate of Merger shall have been issued and released by the SEC. to the shareholders of BDO Elite, and a total of De Oro Savings. approved Plan and Articles of Merger, the merger shall become effective on the date when the On August 10,2016, the SEC approved the Plan and Articles of Merger. Under the Also, pursuant to the Plan of Merger, BDO Capital will issue a total of shares to the shareholders of Banco shares

Capital, BDO Elite, and Banco De Oro Savings as set forth in their respective Audited Financial Statements filed with the SEC together with the Articles of Merger and the Plan and Agreement of Merger, are as follows: The authorized capital stock issued and outstanding capital stock of each of BDO

BDO Capital

Common Type of Share Authorized Outstanding Issued and Value Par No. of Shares Amount

Preferred

BDO Elite

Common Type of Share Authorized Outstanding Issued aud Value Par No. of Shares Amount

Preferred

Banco De Oro Savings

Common Type of Share Authorized Outstanding Issued and Value Par No. of Shares Amount

Preferred

authorized capital stock, the authorized capital stock and issued and outstanding capital stock of BDO Capital are as follows: Beginning on the effective date of the merger and upon approval of its increase of

BDO Capital

Common Type of Share Authorized Outstanding Issued and Value Par No. of Shares Amount

Preferred

following: Based on the foregoing representations, you now request for confirmation of the

The statutory, merger of BDO Capital, BDO Elite, and Banco De Oro Savings qualifies for non-recognition of gain or loss for income tax

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BDO CAPITAL &INVESTMENT CORPORATION S40M-0512-2020 SEP 0 9 2020

Savings will not be subject to income tax, withholding tax, or capital gains tax on the transfer. purposes in accordance with Sections 40(C)(2) in relation to 40(C)(6)(b) of the NIRC of 1997, as amended.Therefore, no gain or loss'shall be recognized by BDOCapital, BDO Elite,and Banco De Oro Savings on the transfer of all assets and assumption of liabilities pursuant to the Articles and Plan of Merger, and BDO Capital,BDO Elite,and Banco De Oro

2. The surrender by BDO Elite shareholders of their BDO Elite shares and the surrender by Banco De Oro Savings shareholders of their Banco De Oro Savings shares for cancellation pursuant to the merger is not subject to documentary stamp tax (DST).

Savings as a consequence of the merger. On the other hand, DST at the rate of P fractional part thereof, shall be imposed on the original issuance of BDO Capital shares in favor of the shareholders of BDO Elite and Banco De Oro on each P par value, or

3 The transfer of assets by BDO Elite and Banco De Oro Savings to BDO

Capital is not subject to donor's tax since there is no intention to donate on the part of BDO Elite and Banco De Oro Savings and that the merger was undertaken purely for legitimate business purposes.

4.The transfer of assets by BDO Elite and Banco De Oro Savings to BDO Capital pursuant to the merger is not subject to value-added tax (VAT). 5. Since the legal and beneficial ownership of excess creditable withholding Oro Savings to BDO Capital as a consequence of the merger, BDO Capital as the surviving corporation is now entitled to exercise all the attributes of ownership over them. Hence, BDO Capital is entitled to carry forward and apply these excess creditable withholding taxes as credit against its Minimum Corporate Income Tax (MCIT) or regular corporate income tax liabilities. taxes (CWT) were effectively transferred from BDO Elite and Banco De

6. Any excess MCIT of Banco De Oro Savings and BDO Elite shall be

the date of payment of the MCIT by Banco De Oro Savings and BDO Elite pursuant to'Section 27(E)(2) of the NIRC of 1997, as amended. transferred and vested in BDO Capital on the effective date of merger and] Oro Savings and BDO Elite against its regular corporate income tax liabilities for the three immediately succeeding taxable years reckoned from BDO Capital may carry forward and credit the excess MCIT of Banco De

The accumulated unutilized Net Operating Loss Carry Over (NOLCO) of of 1997, as amended. preserved, transferred to and vested in BDO Capital, as the surviving corporation, and may be carried over and claimed by BDO Capital as a deduction from its gross income pursuant to Section 34(D)(3) of the NIRC Banco De Oro Savings and BDO Elite as the absorbed corporations are

In reply thereto, please be informed as follows:

corporations own, hold, and manage various assets for the same beneficial owner. Hence, the of BDO Elite and Banco De Oro Savings and the same is necessary and advisable and is to the advantage and welfare of the merging corporations and their respective stockholders since the of 1997, as amended, because BDO Capital shall acquire/assume all the assets and liabilities within the contemplation of Section 40(C)(2), in relation to Section 40(C)(6)(b) of the NIRC 1. The merger of BDO Capital, BDO Elite, and Banco De Oro Savings is a merger

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BDO CAPITAL & INVESTMENT CORPORATION S4OM-0512-2020 SEP 9 2020

merger of BDO Capital, BDO Elite, and Banco De Oro Savings is being undertaken for a bona to the Articles and Plan of Merger. fide business purpose and not for the purpose of escaping the burden of taxation. Banco De Oro Savings, as the transferors of all assets and liabilities, to BDO Capital pursuant recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the NIRC of 1997, as amended, and that no gain or loss shall be recognized by BDO Elite and The merger of BDO Capital, BDO Elite, and Banco De Oro Savings qualifies for non-

its receipt of the assets and liabilities of BDO Elite and Banco De Oro Savings pursuant to and as a consequence of the merger. Accordingly, no gain or loss shall be recognized by BDO Capital, as the transferee, on

De Oro Savings upon the exchange shall be the same as the basis of the properties, stocks or securities they exchanged, decreased by (1) the money they received, and (2) the fair market value of the other property/ies they received and increased by (a) the amount treated as dividend of the shareholders and (b) the amount of any gain that was recognized in the exchangef. be the same as it would be in the hands of the transferors (BDO Elite and Banco De Oro Savings) increased by the amount of the gain, if any, recognized to the transferors on the transfer2 The basis of the shares of stocks to be received by shareholders of BDO Elite and Banco The basis of the property transferred in the hands of the transferee (BDO Capital) shall

Such exchange, then such excess shall be considered as a gain from the sale or exchange of a capital asset or of property which is not a capital asset, as the case may be3. property is subject exceed the total of the adjusted basis of the property transferred pursuant to If the amount of the liabilities assumed plus the amount of the liabilities to which the

be excluded from the computation of the adjusted basis of the properties transferred for purposes of 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 Revenue Memorandum Ruling (RMR) No. 2-2002 dated June 10, 2002. Savings to BDO Capital should strictly comply with the rule that cash and other cash items will The substituted basis of the properties transferred by BDO Elite and Banco De Oro

by BDO Elite shall be as follows: Accordingly, the allocated shares and the substituted basis of the properties transferred

Due from other banks Assets Amount Liabilities Allocated Allocated Shares Substituted Basis

Financial Assets at Fair Value through profit or loss Available-for-sale Investments - net

Receivables

Other Resources

Total

ISec. 40 (C)(5(a) of the NIRC of 1997, as amended. Sec.40C5b,supra Sec. 40 (C)(4)(b), supra

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BDO CAPITAL &INVESTMENT CORPORATION CH0M-0312-2020 SEP 0 9 2020

Liabilities Amount Accrued Taxes and Other Expenses

Due to Treasurer of the Phi lippines

Total

Banco De Oro Savings shall be as follows: Whereas, the allocated shares and the substituted basis of the properties transferred by

Due from Banko Sentral ng Pilipinas Assets Amount Liabilities Allocated Allocated Shares Substituted Basis

Due from other banks

Financial Assets at Fair Value through profit or loss Available-for-sale Financial Assets

Receivables

Other Resources

Total

Liabilities Amount

Accrued Expenses and Other Liabilities

for cancellation pursuant to the merger under Section 199 (m) of the NIRC of 1997, as amended by Republic Act (RA) No. 9243, in relation to Section 40 (C) (2) of the NIRC of 1997, as and the surrender by Banco De Oro Savings shareholders of their Banco De Oro Savings shares amended. 2. No DST is due on the surrender by BDO Elite shareholders of their BDO Elite shares

the rate of P On the other hand, pursuant to Section 174 of the NIRC of 1997, as amended, DST at on each P par value, or fractional part thereof, shall be imposed on the original issuance of shares by BDO Capital in favor of the shareholders of BDO Elite and Banco De Oro Savings as a consequence of the merger.

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 valid

for a legitimate business purpose. Thus, the merger will not be subject to donor's tax since and Banco De Oro Savings to donate to BDO Capital their assets since the transaction is purely Clearly, there is no intention on the part of any of the parties to the merger - BDO Elite

+ Old DST rate is used since the transaction took place prior to the effectivity of RA No. 10963 or the TRAIN Law.

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BDO CAPITAL & INVESTMENT CORPORATION S40M -0512-2020 SEP 0 9 2020

there is no intention to donate, and the transaction is a bona fide merger effected solely for business reasons.

Capital as a consequence of the merger is not subject to VAT pursuant to Section 105 of the NIRC of 1997, as amended. The transfer of assets/properties to effectuate a merger is not made in the course of business but by operation of law pursuant to the merger. 4. The transfer of assets/properties of BDO Elite and Banco De Oro Savings to BDO

used in business, that are held for sale or for lease by the transferors, that are originally intended to BDO Capital are mainly financial assets. These do not include goods or properties that are for sale or for use in the course of business, nor that are of any character or nature subject to VAT. Furthermore, the assets/properties transferred by BDO Elite and Banco De Oro Savings

De Oro Savings, as of the effective date of the merger, which form part of the assets to be transferred by the absorbed corporations to BDO Capital as a consequence of the merger, may be applied as a tax credit by BDO Capital against its income tax due for the taxable year 2016, the effective date of the merger being August 10, 2016, and in the succeeding taxable years, or may be the subject of a claim for refund or issuance of a tax credit certificate (TCC). 5. The excess and unutilized CWT of the absorbed corporations, BDO Elite and Banco

De Oro Savings, as of the effective date of the merger shall be carried forward and credited against the regular corporate income tax due of the surviving corporation, BDO Capital, for the three (3) immediately succeeding taxable years pursuant to Section 27(E)(2) of the NIRC of Oro Savings, their excess and unexpired MCIT shall be transferred to and vested in BDO payment of BDO Elite and Banco De Oro Savings of their MCIT. 1997, as amended. Since the excess and unexpired MCIT of BDO Elite and Banco De Oro Savings are among the rights, privileges, property and/or interest of BDO Elite and Banco De Capital on the effective date of the merger. Thus, BDO Elite and Banco De Oro Savings' excess and unexpired MCIT shall be carried forward and credited against the regular corporate income tax of BDO Capital subject to the three-year-carry-forward period reckoned from the date of 6. The excess and unexpired MCIT of the absorbed corporations, BDO Elite and Banco

of the absorbed corporations, BDO Elite and Banco De Oro Savings, if any, is not one of their assets that can be transferred and absorbed by the surviving corporation, BDO Capital, as this tax-free merger does not cover the NOLCO of BDO Elite and Banco De Oro Savings that can be transferred and absorbed by BDO Capital. NIRC of 1997, as amended, and as implemented by Revenue Regulations (RR) No. 14-2001 privilege or deduction can be availed of merely by the absorbed corporations. Accordingly, the 7. It is to be emphasized, however, that the NOLCO under Section 34(D)(3) of the

under Section 40(C)(2) and (6)(b) of the NIRC of 1997, as amended, the parties to the merger should comply with the following requirements set forth under RR No. 18-2001: 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. 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 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 in connection with the reorganization, including:

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;

Q

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BDO CAPITAL&INVESTMENT CORPORATION S40f-0512-2020 SEP 0 9 2020

2. A complete statement of all cost or other basis of all property, 3.A statement of the amount of stock or securities and other property including all stocks or securities, transferred incident to the plan; or money received from the exchange, including a statement of ail distribution of other disposition made thereof. The amount of each kind 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;

B. Every taxpayer, other than a corporation, party to the reorganization, who 4. A statement of the amount and nature of any liabilities assumed 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: upon the exchange, and the amount and nature of any liabilities to Which any of the property acquired in the exchange is subject.

1. 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 anount of stock or securities and other market value thereof at the date of the exchange. 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 exchange) received shall be set forth upon the basis of the fair securities and other property (other liabilities assumed upon the

C. Records in substantial form shall be kept by every taxpayer who participates such stock of securities and other property received from the exchange. 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 facilitate the determination of gain or loss from subsequent disposition of liabilities to which any of the properties received were subject), in order to

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

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

gain or loss was recognized as a result of such merger; provided however, that any violation 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 Furthermore, the parties shall cause to annotate at the back of the Transfer Certificates

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BDO CAPITAL&INVESTMENT CORPORATION S40M-0512-2020 SEP 0 9 2020 by the Register of Deeds or by the Corporate Secretary of this condition shall be penalized under Section 269 or 275, as the case maybe, of the NIRC of 1997, as amended. to the transaction must submit to the Law and Legislative Division, Bureau of Internal Revenue, certified true copies by the Corporate Secretary, of duly annotated Certificates of Stock, in respect of the shares of stock of the transferee corporation, including the revised allocation of shares and re-computation of the substituted bases of the properties which shall be in accordance with RMR No. 2-2002. Finally, it is required that within ninety (90) days from receipt of this ruling, the parties

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,

K-1-LMAT Commissioner of Internal Revenue 1aesanra CAESAR R. DULAY 3 036576

O

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C40M-0512-2020 SEP 0 9 2020

Particulars (The entry/ies shall be per individual shareholder of Individual Shareholder's Book ANNEX "A"

Journal Entry to Record the Tax Free Exchange of (name of issuing corporation/s) with aggregate fair market value of Investment in (transferee's name To record the Tax-Free Exchange of investment in (share type) shares D Investment in (name of dissolving corp.) Dividend Income (net of FWT on dividend) in exchange for (type and no. of share) of (name of the absorbed corporation) XXX.XX XXX.XX XXX.XX (share type) shares of (name of isuing corporation/s), and other assets To record the Tax-Free Exchange of real properties, investment in Other Assets (as applicable Investment in (issuing corp., for shares of stock)xxx.xx PPE - Land & Improvement (for real props.) Capital Stock Additional Paid-In Capital Liabilities Transferee/Surviving Corporation's Book XXX.XX XXX.XX XX.XX XXX.X XXX.XX

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

Proforma Entries Sale/Transfer Subsequent to Record To record subsequent sale / transfer of investment acquired thru tax- Cash or Accounts Receivables free exchange Investment in (name of transferee) Gain on Sale of Investment XXX.XX XXX.XX XXX.XX Cash or Accounts Receivables free exchange To record subsequent sale/transfer of investment/s acquired thru tax- Investment in (name of issuing corp.)/ PPE - Land & Improvement / Other Assets Gain on Sale of Property/ies* XXX.XX XXX.XX XXX.XX

Provision for Tax as follows: Current Tax Payable XXX.XX XXX.X Current Provision for Tax as follows: Tax Payable XXX.XX XXX.XX

*If subscquent sale/s on investment/s was/were made before January 1, 2018. the tax rates DR 2 O used in the computation of Net Capital Gains Tax and Stock Transaction Tax at the time of the tax-free exchange shall apply c CapitalGainsPl0.00and Stock Transaction Net Capital Gains Stock Transaction Tax Type Tax Tax Tax Tax 10% on cxcess Tax Rate* 6/10 of 1% 1/2 of % 5% on Total Tax Payable 15% Selling price of investment at the time Gains realized on tax-fee exchange Gains realized on subsequent sale of FMV of investment/s at the time of the tax-free exchange of subsequent sale investment/s Multiply by Amount XXX.XX KX.X OR Withholding Tax1.5% to 6%per [Stock Transaction Stamp Tax DSTfractional part Net Capital Gains Value-Added Tax Documentary T ax Type Tax Type ONETT (VAT) Tax Tax RR No. 6-2001 1.5% for every P1,000 and Tax Rate* 6/10 of 1% Tax R ate thcreof Total Tax Payable 12% 1% Selling price of investment at the time Gains realized on subsequent sale of property/ies at the time of subsequent Fair Market Value (FMVof the of subsequent sale sale / transfer Multiply by Multiply by investment's Amount Amount XXX. X.XX XXX.XX XXX.XX XXX.XX *Computation of Gain Realized on Subscquent Sale of Investment Per RMO No.17-2016the sustiuted basis of the stock or securites rceived by the as dividend of the sharcholder. if any. and (b the amount of any gain that was recognized transferor on a tax-free exchange shall be as follows: (l The original basis of the the fair market value of the other property rccived,if any3Plus:(a the amount treated propertv,stock or securties to be transferred(2 Less:a money received,if any,and b on the exchange,if any Less: Cost (Substituted Basis Net Capital Gain on sale of unlisted shares Selling Price XXX.XX XXX.XX XXX.XX FMV at the time of subsequent saletraner fers to the seing prczonal valuc or the *Gain on salc of property/ies is subject to Normal Corporate Income Tax (NCIT) value reflected in the tax declaration, whichever is highest.