BIR Ruling No. 401-2022

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Sec.40(C)(2)&(6)(b) of the Tax Code of 1997, as amended; RR No. 18-01 BIR Ruling No. 214-12 BIR Ruling No. 075-18 BIR Ruling No. 100-17 S46M- 401 2n7

SFP 2 9 2022

22nd Floor ACCRALaw Tower, 2nd Avenue cor. 30th St. Crescent Park West, Bonifacion Global City, 1635 Taguig ANGARA ABELLO CONCEPCION REGALA & CRUZ

Attention: ATTY.FATIMA FAYE E. CORDOVA ATTY. AZZEDINE G. SADSAD ATTY. ERIC R. RICALDE and

Gentlemen:

Philippine Foremost Milling Corporation (PFMC) and Mindanao Grain Processing Co., Inc. accordance with Section 40(C)(2) and 6(b) of the National Internal Revenue Code (Tax Code) of 1997, as amended. (MGPCI), with PFMC as the surviving corporation, qualifies as a tax-free merger in This refers to your request for confirmation of your opinion that the merger between

Background

Commission (SEC). It has"an"authorized"capital stock"of (P of actuallv been subscribed and paid-up is (O: 1. PFMC is a domestic corporation duly registered with the Securities and Exchange 1 Pesos (P ) ) divided into i) per share. The amount or capital stock of PFMC which has ) common shares with a par value Pesos

amount of canital stock of MGPCI which has actually been subscribed and paid-up is . capital stock of ( 2. MGPCI is a domestic corporation duly registered with the SEC. It has an authorized :ommon shares with a par value of 3 P Pesos (P T 'esos (P ) divided into per share. ine

On June 19, 2020, a special meeting was conducted both by PFMC and MGPCI wherein the said merger was approved by their stockholders owning 100% of the total issued and outstanding capital stock of PFMC and MGPCI. Board of Directors of PFMC and MGPCI approved the merger between the two corporations. 3. On February 28, 2020, at ti'e meeting duly called for the purpose, the majority of the

the Surviving Corporation for the reason that it is desirable and advantageous to both corporations and their respective stockholders. 4. On June 22, 2020, PFMC and MGPCI entered into a Plan of Merger, with PFMC as

an exchange rate of share shall be issued to the directors of MGPCI and each of whom will hold only one (1) qualifying share in MGPCI, as a result of the merger. As a result, the following PFMC shares shall be issued: 5. Under the Plan of Merger, each MGPCI stockholder shall receive PFMC shares using PFMC shares for every l MGPCI share. Further, no PFMC

Section 40(C)(2)& 6(b) PFMC and MGPCI SA0M- .4 0 1 - 2 0 2 2 SEP 2 9 2022 2

a.La Filipina Uy Gong co Corporation - b.Roderico R. Bioco - shares of PFMC shares of PFMC

month of the approval by the SEC."On December 17, 2020, SEC approved the Article and and Articles of Merger on the same date (Effective Date). Plan of Merger of the constituent corporations and issued the Certificate of Filing of the Plan 6. Also, under the Plan of Merger, the effective date of the merger is at the end of the

claim by or against MGPCI shall be prosecuted by or against PFMC; provided however, that PFMC may avail of all defenses otherwise available to MGPCI. receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of or belonging to'or due to PFMC as of December 31, 2019 up to the effective date of merger, shall be taken and deemed to be transferred to and vested "in MGPCI by operation of law, without further act or deed, except as may be of the Effective Merger Date (iucluding such debts and liabilities of MGPCI as of 31 same manner as though PFMC itself incurred such liabilities and obligations and any such and franchises of PFMC, and all property, real or personai, "bank deposits,"rights and all otherwise provided. Moreover, PFMC shall assume all the debts and liabilities of MGPCI, as December 2019, to the extent not fully discharged as of the Effective Merger Date), in the 7. Upon the Effective Date of the Merger, all the rights, powers, privilege, immunities

PFMC k~s tot?! assets of 1 8. The Audited Financial Statements of PFMC as of December 31, 2019 indicate that (D n total liabilities of

Pesos ( E "esos (P. 0) and total stockholders' equity of

stockholders' equity of : 2019 indicate that MGPCI has total assets of () 9 On the other hand, the Audited Financial Statements of MGPCI as of December 31 : total liabihties or : (P: L 00).and totat Pesus

that: Based on the foregoing representations, you now request confirmation of your opinion

1. No gain of loss shall be recognized on the merger and the subsequent transfer of properties to PFMC: Accordingly, the exchange is exempt from the following taxes: h. a Documentary "stamp tax (DST) on the sale, transfer and assignment of real Income and capital gains tax (CGT); and

6 3 S The excess creditable withholding tax of MGPCI, as of effective date of merger, will The transfer shall not be subject to donor's tax: The only DST due on the transaction is the DST imposed on the original issuance of issued as a result of imerger; and be transferred to and utilized by PFMC, as the surviving corporation. The transfer shall not be subject value-added tax (VAT): Any unused input VAT of MGPCI, as of the effective date of merger, will be absorbed shares of stock of PFMC at P2.00 for every P200.00 of the par value of the shares and utilized by PFMC, as the surviving corporation; properties.

PFMC and MGPCI Section 40(C)(2) & 6(b) SAM4 0 1 SEP 2"g"2022 2022

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In reply thereto, please be informed, as follows:

be desirable and advantageous to both corporations and their respective stockholders. Hence the merger of PFMC and MGPCI is being undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax Code of 1997, as amended) because PFMC shall acquire/assume all the assets and liabilities of MGPCI and the same will 1. The foregoing merger of PFMC with MGPCI is a merger within the contemplation of

Hiabilities, to PFMC pursuant to the Plan of Merger. tax purposes "in accordance with Section 40(C)(2) of the Tax Code of 1997, as amended, that no gain or loss shall be recognized by PFMC and MGPCI, as the transferor of all assets and The merger of PFMC and MGPCI qualifies for non-recognition of gain or loss for income

and liabilities of MGPCI pursuant to and as a consequence of the merger. No gain or loss shall be recognized by PFMC, as the transferee, on its receipt of the assets

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 shareholders and (b) the amount of any gain that was recognized in the exchange. (Sec. 40 MGPCI upon the exchange shall be the same as the bases of the properties, stocks or (C) (5) (a) of the Tax Code of 1997, as amended) On the other hand, the bases of the shares of stocks to be received by the shareholders of

gain, if any, recognized to the transferor (PFMC) on the transfer. (Sec. 40 (C) (5) (b), supra) same as it would be in the hands of the transferor (MGPCI) increased by the amount of the The basis of the properties transferred in the hands of the transferee (PFMC) shall be the

transferor, from the sale or exchange of a capital asset or of property which is not a capital asset, as the case may be. (Sec. 40 (C) (4) (b), supra) the properties are subject exceed the total of the adjusted basis of the properties transferred pursuant to such exchange, then such excess shall be considered as a gain,'on the part of the Finally, if the amount of the liabilities assumed plus the amount of the liabilities to which

pursuant to No. IV(A)(2) of Revenue Memorandum Ruling (RMR) No. 2-2002 dated June to which the property is subject do not exceed the adjusted basis of the property transferred 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 10, 2002. The substituted basis of the properties transferred by MGPCI to PFMC shall comply with

transferred by MGPCI to PFMC, based on MGPCI's Audited Financial Statements as of December 31, 2019 shall be as follows: Accordingly, the allocated shares and liabilities, and the substituted basis of the assets

Or Liabilitfes Allocated Aloc B ubstit

Inventories Receivables Cash

PFMC and MGPCI Section 40(C)(2)& 6(b) S40M-. 4 0 1 - 2 0 SEP 2 9 202

Prepayments and other current assets Receivables-

plant and net portion Property, noncurrent equipment -

plan asset Retirement

Total

HLiabilities

payables Trade and other

Income tax payabie Other current liabilities Total

is exempt from VAT pursuant to'Section 109 (x) of the Tax Code of 1997, as amended. 2.The transfer of assets/properties of MGPCI to PFMC as a consequence of the merger

specifically excludes mergers from being subject to output tax, to wit: Moreover, Section 4.106-8(b)(3) of Revenue Regulations (RR) No. 16-2005, as amended

"SECTION 4.106-8. Change or Cessation of Status as VAT-registered Person.

XXX XXX xXX

(b) Not subject to output tax.

of the following: The VAT shall not apply to goods or properties existing as of the occurrence

( XXX xx XXX

dissolved"corporation, as of the date of merger or consolidation, shall be absorbed by the surviving or new corporation. (3) Merger or consolidation of corporations. The unused input tax of the

input tax of MGPCI as of the effective date of merger wili be transferred to and absorbed by PFMC pursuant to Section 4.106-8(b)(3) of RR No. 16-2005, as amended, the said transfer being considered a transaction "not subject to output tax"" under the said Section. Thus, the above-mentioned transaction shall not be subject to output tax, and any unused

Section 40(C(2) & 6(b) SAOM-. 4 0 1 - 2 02 2 SEP 2 9 2022 PFMC and MGPCI

3. Well-settled in our jurisprudence is the fact that the essential elements of a valid

donation are: (l) 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).

Clearly, there is no intention on the part of any of the parties to the merger -- PFMC and MGPCI to donate to PFMC its assets since the transaction is purely for legitimate business purpose. Thus, the aforesaid merger will not be subject to donor's tax since there is no intention to donate, and the transaction is a bonafide merger effected solely for business reasons.

Section 199.(m) of the Tax Code of 1997, as amended by Republic Act No. 9243, in relation to Section 40 (C) (2) of the Tax Code of 1997, as amended. (BIR Ruling No. 100-2017 dated March 2, 2017 4. No DST is due on the transfer of assets made pursuant to the Plan of Merger under

parts of the merger including the surrender of shares in'exchange for shares, should be treated as a single and continuing transaction subject only to one DST." The Court held, as follows: Revenue (C.T.A. Case No. 6477 dated April 20, 2003), the Court stated that all the integral In the case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal

transaction which was previously consummated. merger but an integral part or a mere contimuation of the initial merger (e.g., surrender of shares in exchange for shares, transfer of assets, assumption of liabilities, etc.) should be treated as a single and continuing transaction subject only to one DST. The transfer of real property is not a transaction separate and distinct from the such as the absorption of real property, should no longer be subject to another round of DST. In other 'words, all the integral parts of the surviving corporation of its own shares of stock to the stockholders by the shareholders of the absorbed corporation. transactions which are an integral and inherent part of the merger, really imposed on the privilege to enter into a transaction. Its imposition, therefore, should be only once. And in a statutory merger, there is only one transaction, ie., the issuance by the of the absorbed corporation in exchange for the shares surrendered "As earlier stated, DST is in the nature of an excise tax because it is All other

as a consequence of the merger as provided under Section 174 of the Tax Code of 1997, as shall be imposed on the original issuance of shares by PFMC to the stockholders of MGPCI amended. Moreover, DST at the rate of P2.00 on each P200 par value, or fractional part thereof,

assets to be transferred by MGPCI as of the effective date of the merger, shall be transferred to and vested in PFMC, as the surviving corporation, and such excess CWT may be utilized by the latter. (BIR Ruling No. 100-2017 dated March 2, 2017) 5 Any excess and unutilized creditable withholding taxes (CWT), which form part of the

effective date of the merger. Thus, MGPCI's excess and unexpired MCIT shall be carried against the normal income tax due of PFMC for the three (3) immediately succeeding taxable years pursuant to Section 27(E)(2) of the Tax Code of 1997, as,amended. Since the excess and unexpired MCIT of MGPCI are among the rights, privileges, property and/or interest of MGPCI, their excess and unexpired MCIT shall be transferred to and vested in PFMC on the the effective date of the merger as of year 2019, if any, shall be carried forward and credited 6.The excess and unexpired minimum corporate income tax (MCIT) of MGPCI, as of

Section 40(C)(2) & 6( PFMC and MGPCI SAOM-. 4 0 1 - 2 0 2 2 SEP 2 9 202Z

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forward and credited against the regular corporate income tax of PFMC subject to the three-

year-carry-forward period reckoned from the date of MGPCI of their MCIT.

. It is to be emphasized, however, that the net operating loss carry-over (NOLCO) under

Section 34(D) (3) of the Tax Code of 1997, as amended, and as implemented by RR No. 14-

2001, of MGPCI, if any, is not one of their assets that can be transferred and absorbed by the

surviving corporation, PFMC, as this privilege or deduction cah be availed of by MGPCI

only. Accordingly, the tax-free merger does not cover the NOLCO of MGPCI.

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 Revenue Regulations No. i8-

2001:

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:

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 from the exchange, including a statement of all 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:

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, party to the reorganization, who received

stock or securities and other property or money upon "a tax-free exchange in

facts pertinent to the non-recognition of gain or loss upon such exchange, including: 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

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 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 securities and other property (other liabilities assumed upon the exchange) received shall be set forth upon the basis of the fair market value

thereof at the date of the exchange.

Section 40(C)(2)& 6(b} PFMC and MGPCI SA6M- 4 0 1 - 2 0 2 Z SEP 2 9 2022

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

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

taxable years until the subject properties are subsequently transferred to another transferee. 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 Such parties shall include as a note to their respective audited financial statements for the

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

by the Register of Deeds or by the Corporate Secretary of this condition'shall be penalized under Section 269 or 275, as the case may be, of the Tax Code of 1997, as amended. historical cost of acquisition of the properties or shares of stock involved, and the fact that no Title (TCT) and Certificates of Stock, the date the merger was executed, the original or 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 of

Internal Revenue, proof of annotation of the substituted basis of the shares of stock and/or real properties involved in the transfer within ninety (90) days from receipt of this ruling. Code of 1997, as amended. Violation of this requirement is subject to the penalties provided in Section 275 of the Tax Finally, the parties are required to submit to the Law and Legislative Division, Bureau of

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, if

E K- Commissioner of Internal Revenue LILIA CATRIS GUILLERMO Chl C Gull Very truly yours. 001683

PROFORMA ENTRIES CRGER nnex "A" S4oM-. 4 0 1 - 2 0 2 SEP 2 9 2022

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

[Joumat [Entry to Record the [Tax-Free Exchange Investment in (name of transferec) Investment in (name of dissotving 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) Liabilities Capital Stock Additional Paid-In Capital XXX. XX XXX. XXX.XX X. XXX.X XXX.X]

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

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

Sale ! Record Subscquent Proforma Entries to Transfer To record subsequent sale / transfer of investment acquired thru Tax-Freec Exchange Curtent Cash or Accounts receivables Tax Payable Investment in (name of transferee) Gain on Salc of Inivestment XX.X XXX.XX XXX.xx XX.XX XxX.xx investment/s and/or other assets acquired thru Tax-Free Cash or Accounts receivables To record subsequent sale / transfer of real properties. Curent Investment in (name of issuing corporation)/ PPE.- Tax Payable Land & Improvement / Other Assets Gain on Sale of Investment XX. X XX.XX xXX.XX X. XXX.

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

OO OR [Stock Trannction Tx 1){Na CapialGaims Tx Nel Capital Gains Tx if wubscqpant aich of investmcat/s wi/wae mede before Jany J, 2015. the ax rats used in the compuation of Ne Capital Gaing Tx and 5tock Is Transaction Tax t the tiroe of tax-Frec axchunge shll spply. Totot Tax Payable Tx I pe too Tx 5%ca P100,003 and jGzim rcalizod on 10%cn nce 6/10 of 1% Tur Rate I of 1% 1 of investrionth toboqoent tanle Gaing realizod on Selng Price or FMV of ibv/s a F beoquend wule Mnkiply By the timc of TFE catmnt at the tc o YFE XXX.XX $A OR [Stock Tramsaction Tax 1}{Ne Captal Gaing Tar 2 T (DT J|Vahuc-Addod Tas T Total Tax rayabic [ Wishholding Tex. ONETT Oo Tatal Tas Payabe Txx Type Tax Type Wy Sump and fractianal part thercof 1.5% to 6% per RR No.6 1.3% Tar cvtry P1,000 6/10 of % Tr Rate 1t 20 Ra I Vahme (FMV} at the propertyhes tubscquert sale /7 mbecqucrt sak [Gim eadid g t the timec ofr broqucni sote Mnkiply By Seling Price of Makipby By Fair Market Of nvest trusfer timc aof f A 3. W t DL

Compti f Ga Selting Price Lees: Cosl (Substitstod Beis) Net Copial Gain om sale of urlited rhere HsOcaw- X. S 33 *FMV nt the ime of wubsequent salc / trans[ar refer to the selling price, zonal *Gain on sale of property/ses is subjoci to Normal Corporatc Income Tx (NCT) value or the value reflociad in the tox decdartion, whuchever is highest.

* Por RMO 17-2016, tbo follos:(1 The oiginal be of he ropty,wock owitit be ransed2 Le:mooy received, inynd (b} thefir amount treted dividend f the shrchoider, ifmymd (b hd received by the tranfcror on s tex-free axchmge shull be m nurkel vahe of tho otha y gain that was recognized on the exchenge, if may! Hbstittod batis of tha siock or securiti Tpropcty recivod, ifay;3)Plu Uhe