BIR Ruling No. 371-2021

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT CF FINANCE

Quezon City

BIR Ruling No. 075-2018 Section 40(C)(2) and (6)(b) of the National Internal Revenue Code of 1997, as amended. SU -3 7 1 - 2 0 2 OCJ 0-6

NORTHERN CEMENT CORPORATION 3rd Floor, 155 EDSA Building, 155 EDSA Wack-wack, Mandaluyong City

Attention: RODELIA S. SARROSA

Gentlemen:

Corporation ("NCC"), the surviving corporation, and San Miguel Northern Cement, Inc. ("SMNCI"), the absorbed corporation, qualifies as a tax-free exchange pursuant to Section 40(C)(2) in relation to Section 40(C)(6)(b) of the National Internal Revenue Code (Tax Code) of 1997, as amended. This refers to your request for confirmation that the merger between Northern Cement

BACKGROUND

developing, processing, exploiting, buying and selling cement and/or other products derived organized and existing under Philippine laws, which is primarily engaged in manufacturing. therefrom, allied thereto, or necessary therefor, among others. Its registered office address is at 3rd Floor 155 EDSA Building, 155 EDSA, Barangay Wack Wack, Mandaluyong City. NCC, with Tax Identification Number ("TIN") is a corporation duly

Star Holdings, Inc. ("LSHI") andSan Miguel Equity Investments Inc. (SMEIl"). LSHI owns series 2 non-voting preferred shares, comprising 65% of the total outstanding capital stock of NCC, which comprises 35% of the total outstanding capital stock of NCc voting preferred shares with par value of Php10.00 ner share; of which are owned by LSHI. NCC. On the other hand, SMEII owns the entire 100% outstanding voting common stock of 104,500,000 voting common shares with par value of Php10.00 per share. (h) common shares are owned by' SMEHI, while 3 1, 2020, the total authorized capital stock of NCC is Php l non-voting preferred shares with par value of Phr20.00, and (c) NCC is owned by holding companies incorporated in the Philippines, namely, Lucky. series 2 non-voting preferred shares As of December divided into: (a) series 2 non- ) series voting

Philippine laws, which is established pri:arily to engage in the business of manufacturing. in such goods as cement and other goods of similar nature. Its registered office address is at 3rd Floor, 155 EDSA Building, 155 EDSA Brgy. Wack Wack, Mandaluyong City. SMNCI is a wholly-owned subsidiary of SMEll. developing, processing, exploiting. importing, exporting, buying, selling or otherwise dealing SMNCI, with is a corporation duly organized and existing under

NORTHERN CEMENT CORPORA TION OCT"0 6 2021

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 NCC and SMNCI, at least a majority of the members of the respective Boards of Directors and stockholders holding at least two-thirds (2/3) of the outstanding capital stock of NCC and SMNCI approved on March 3, 2021 the merger of NCC and SMNCI, with NCC as the surviving corporation, subject to the following terms and conditions as provided in the Plan of Merger entered into between NCC and SMNCI, dated March 3, 2021, as set forth below.

I. SMNCI shall be merged into NCC in accordance with Title IX of the Revised

Corporation Code of the Phitippines (the "Revised Corporation Code") and the terms and conditions set forth in the Pian of Merger ("Merger").

2. The Merger shall be effective on the first date of the month immediately succeeding

the month when the Securities and Exchange Commission ("SEC) issued a certificate approving the Articles and Plan of Merger.

3. NCC shali be the surviving corporation and the separate corporate existence of SMNCI shall cease.

4. NCC, as the surviving corporation, shall continue to possess all the rights.

privileges, immunities and powers, and shall be subject to all the duties"and liabilities of a corporation organized under the Revised Corporation Code.

5. NCC, as the surviving corporation, shall thereupon and thereafter, possess all the

rights, privileges, immunities and franchises of SMNCI; and all the properties, real and personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging NCC as the surviving corporation, without further act or deed. to, or due to SMNCI, shall be taken and deemed to be transferred to and vested in

6. NCC, as the surviving corporation, shall be responsible for all the liabilities and obligations of SMNCI in 'the came manner as if NCC has itself incurred such corporation. The rights of creditors or any lien upon the property of SMNCI shall not be impaired by the Merger, provided that NCC, as the surviving corporation liabilities or obligations; and any perding claim, action or proceeding brought by or against SMNCI may be prosecuted by or against NCC as the surviving shall have the right to exercise all defenses, rights, privileges, set-offs and counterclaims of every kind and nature which SMNCI may have, or which NCC may invoke under existing laws.

7. The AFS of SMNCI as of December 31, 2020 shall be the basis of the transfer of the assets and liabilities of SMNCI to NCC pursuant to the Merger.

8. As a result of the Merger, a toial of increase in its authorized capital stock shall be issued to the stockholders of SMNCI. common shares of NCc from the

Were filed with SEC. Phnit t ner share, (b) : with par value of Php10.00, and (2) the Articies and Plan ot Merger between NCC and SMNCI, divided into (i) 631,500,000 common shares with par value of Phn10.00, (ii) 1 preferred shares with par value of Php20.00, and (ii) Php On April 27, 2021, the appiication for: (1) the increase in capital stock of NCC from series 2 preterred shares with par value of Phpl0.00 to Php i divided into (a) 104,500,000 common shares with a par value of series 1 preferred shares with par value of Phn20.00. and (c) series 2 preferred shares 0 series

Merger, with the Certificate of Approval of Increase of Capital Stock, Certificate of Filing of Thereafter, the SEC approved the applications for the increase in capital stock and the

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NORTHERN CEMENT CORPORATION

Amended Articles of Incorporation, anti Ce: ificate of Filing of the Articles and Plan of Merger. all issued by the SEC on June 14, 2021. Pursuant to the provisions of the Plan of Merger, the effective date of the Merger is on July 01, 2021 (the "Effective Date").

Based on the foregoing representations, you now request for confirmation that the merger between NCC, the surviving eorporation, and SMNCI, the absorbed corporation qualifies as a tax-free exchange pursuant to' Section 40(C)(2) in relation to Section 40(C)(6)(b) of the Tax Code of 1997, as amended.

In repiy thereto, please be informed as follows:

40(C)(2), in relation to Section 40(C)(6)(b) of the Tax Code of 1997, as amended, because 1. The merger of NCC and SMNCI is a merger within the contemplation of Section

NCC'shall acquire/assume all the assets and liabilities of SMNCI and the same is necessary in

eliminate duplication of functions"and maintenance costs, and attain greater efficiency and Hence, the merger of NCC and SMNCI is being undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. order to simplify the operations, improve administrative efficiency, increase financial strength. economy in the management of ths businesses for the mutual advantage of NCC and SMNCI.

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

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

they received and increased by (ay the amount treated as dividend of the shareholders and (b) the amount of any gain that was recognized in the exchange'. 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 The basis of the shares of stocks io be received by shareholders of SMNCI upon the

gain, if any, recognized to the transferor on the transfer2. same as it would be in the hands of the transferor (SMNCI) increased by the amount of the The basis of the property transfetred in the hands of the transferee (NCC) shall be the

capital asset or of property which is not a capital asset, as the case may be3. property is subject exceed the totai 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

dated June 10, 2002. comply with the rule that cash and other cash items will 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 f.emorandum Ruling (RMR) No. 2-2002 The substituted basis of the properties transferred by SMNCI to NCC should strictly

by SMNCI based on its AFS as of December 31, 2020 shall be as follows: Accordingly, the allocated shares and the substituted basis of the properties transferred

3 Sec.40(C)(4)(b),supra 1 Sec. 40 (C)(5)(a) of the Tax Code of 1997, as amended. Sec. 40 (C)(5)(b), supra

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NORTHERN CEMENT CORPORATION S42M-3 7 1

OCT 0 6 202t.

Assets Amount Ailocated Liabilities Allocated Shares Substituted Basis

Cash and Cash Equivalents

Receivables

Other Current Assets

Property, Plant and Equipment Other noncurrent Assets

Total

Liabilities Amount

Accounts Payable and Other Current Liabilities

Total

of the donee; and (3) the intent to do an act of liberality (animus 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

the transaction is purely for a legitimate business purpose. Thus, the merger will not be subject to donor's tax since there is no intention to donate, and the transaction is a bona fide merger effected solely for business reasons. Clearly, there is no intention on the part of SMNCI to donate to NCC its assets since

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. is exempt from value-added tax'(VAT) pursuant to Section 109 (X) of the Tax Code of 1997 3. The transfer of assets/properties of SMNCI to NCC as a consequence of the merger

no DST'is due on the surrender by SMNCI shareholders of their SMNCI shares for No. 9243, in relation to Section 40 (C) (2) of the Tax Code of 1997, as amended. Consequently the merger under Section 199 (m) of the Tax Code of 1997, as amended by Republic Act (RA) cancellation. 4. No documentary stamp tax (DST) is due on the transfer of assets made pursuant to

at the rate of P2.00 on each P200 par value, or fractional part thereof, shall be imposed on the original issuance of shares by NCC in fa vor of the shareholders of SMNCI as a consequence of the merger. On the other hand, pursuant to Section 174 of the Tax Code of 1997, as amended, DST

refund or issuance of a tax credit certificate (TCC). corporation, SMNCI, as of the effective date of the merger, which forms part of the assets to be transferred by the absorbed corporation to NCC as a consequence of the merger, may be applied as a tax credit by NCC against its income tax due or may be the subject of a claim for 5. The excess and unutilized creditabie withholding tax (CWT) of the absorbed

MCIT shall be transferred to and vested' in NCC on the effective date of the merger and'shall are among the rights, privileges, property and/or interest of SMNCI, the excess and unexpired 6. Since the excess and unexpired minimum corporate income tax (MCIT) of SMNCI

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NORTHERN CEMENT CORPORATION OCT 0 6 2021 ~ Q

be carried forward and credited against its regular corporate income tax due for the three (3) immediately succeeding taxable years pursuant to Section 27(E)(2) of the Tax Code of 1997, as amended.

In order that the above-described reorganization can be considered as merger under Section 40(C)(2) and (6)(b) of the Tax Code of 1997, as amended, the parties to the merger should comply with the following requirements set forth under RR No. 18-2001:

A. The plan of reorganization should be adopted by each of the corporation.

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:

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 frorn the exchange, including a statement of ail distribution of other disposition maae 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;

4. A statement of the amouni and nature of any liabilities assumed which any of the property acquired in the exchange is subject. upon the exchange, and the amount and nature of any liabilities to

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: 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 amount of stock or securities and other market value thereof at the date of the exchange. property received is subject. The an.. unt of each kind of stock or securities and other property (other liabilities assumed upon the exchange) received shai! be set forth upon the basis of the fair property or money received froun the exchange, including any liabilities assumed upon the exchange, and any liabilities to which]

C. Records in substantial form shall be kept by every taxpayer who participates received (including any liabilities assumed on the exchange, or any in a tax-free exchange in connection with a corporate reorganization showing the cost or other basis of the transferred property or money

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NORTHERN CEMENT CORPORATION S+0M371-202 OCT 0 6 2021

liabilities to which any of the pperties received were subject), in order to

such stock of securities and other property received from the exchange. facilitate the determinaticn of gain or loss from subsequent disposition of

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

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

Furthermore, the parties shall cause to annotate at the back of the Transfer Certificates 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 by the Register of Deeds or by the Ceroate Secretary of this condition shall be penalized under Section 269 or 275, as the case inaybe, of the Tax Code of 1997, as amended.

Finally, it is required that within ninety (90) days from receipt of this ruling, the parties 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.

This ruling is being issued on the basis of the foregoing facts as represented. However. if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.

Very truly yours.

030u1 A

CAESAR R.DULAY

SK-1 Commissioner of Internal Revenue 046106q

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PROFORMA ENTRIES - MERGER Annex "A"

Particulars (The entry/ies shall be per individual shareholder of the absorbed corporation) Individual Shareholders' Book Transferee' s Book

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

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

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

Subsequent Proforma Entries to Record [Cash or Accounts receivables Gain on Sale of Investment Investment in (name of transferee) XXX.XX XXX.XX XXX.XX Cash or Accounts receivables Investment in (name of issuing corporation) / PPE.-. Land & Improvement / Other Assets Gain on Sale of Investment XXX.XX XXX.xx XXX.Xx[

Sale Transfer jTo record subsequent sale / transfer of investment acquired [thru Tax-Free Exchange Current Tax Payable XXX. KX XXXXX investr::cnt/s and/or other assets acquired thru Tax-Free To record subsequent sale / transfer of real properties, Cuttent Tax Payable XXX.XX XXX. XX

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

H} 2 OR Net Capital Gains Tax Stock Transaction Tax Net Capital Gains Tax Tax Type 5% on P100.00 and [Gains realzcd on t0% on excess Tar Rate Li2 of 1% L % subscquent salc TMV of unv/s at the tiEc of TFE) Gains realized on Multiply By. TFE Amount XXX OR [Stock Transaction Tax Net Capitai Gains Tax Total Tax Paysble Ta Ty pe 6/10 of !% Tax Rate* 1% Gains realized on subscquent sale Seling Pric of of jnveatment's Subscqucnt salc Mu!tiply By sument at the time of Amount 1 X.

ORI IStock Transaction Tax Total Tax Payable thc tax rates used in the comipulation of Net Capital Gains Tax and Stock Transaction Tax at the time of tax-free exchange shall apply. fsbsooucntsacs ofivesbnc 6!0 of 1% U/s was/were made before January 1, 2018 investment at the Selling Price of subscqutit silc of inventment/s timc of XXX.XX uaa on salc of property/ies is subject to Nomal Corporatc Incc [Valuc-Addcd Tax Withholding Tax- ONETT Documentary Stamp T'ax (DST (VAT) Toto} Tax Pavable Tax Type [1.5%to 6% per R No. 6] [and fractional par thereof 1.5% for cvcry P1,000 Rate 20 1 % Valuc (FMV) of the property/ics Multiply By Fair Marker at thc time of Pubscqucnt sale ttansfe: omc Tax (NCIT} Amount x XX.X XX XXX.

Computation of Gain Realiscd on Subscquent Sale of Investment Selling Price Less: Cost (Substituted Basis) Net Capital Gain or sale of unlisted shares x. D *FMV at the time of subscqucnt sate / transfer refers to the sclling price, zonal value or the value reflected in the tax dcciaration, whichever is highest.

Pcr RMO 17-2016,thc substitutcd basis of the stock or securitics reccived by the transferor on a ax-free cxchange shall be as follows: (1) The original basis of the property. stock or securitins to be tra fair market valuc of thc other property feceived, if any; (3)Plus. (a) the amount trcatcd as dividend of the sharcholder, if any, and (b) the amount of any gain that was rccognized on the exchange, i ferred; (2) Less: (a) mocy rcccived, if any, and (bj the

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