BIR Ruling No. 339-2021

REPUBLICOF THE PHILIPPINES

DEPARIMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sec.40(C)(2)&(6)(b) of the amended; RR No. 18-01 Tax Code of 1997, as

BIR Ruling No. 100-17 BIR Ru!ing No.075-18 3+N} BIR Ruling No. 214-12

Muntinlupa City Acro Building. Advanced Warehousing Compound. Km. 22. East Service Road ACRO-TEAM, INC. ALTA TEAM, INC ALPHADISTRIBUTION,INC

Attention: MA. ROSARIO.BENIGNA F. TUMACDER

President

Gentlemen:

Inc. (ALPHA). with ACRO as the surviving corporation, qualifies as a tax-free Code (Tax Code) of 1997. as amended. between Acro Team Inc.' (A(RO). Alta - Team Inc. (ALTA) and Alphadistribution merger in accordance with Section 40(CX2) and 6(b) of the National Internal Revenue This refers to your request for confirmation of your opinion that the merger

Background

1. ACRO. with Taxpayer Identification Number (TIN) - (P4.000.000.00) divided into Forty Thousand (40.000) common shares with a par value of One Hundred Pesos (P100.00) per share. The amount is One Million Pesos (P1,000.000.00). domestic corporation duly registered with the Securities and Exchange (ommission (SEC) with principal office address at Acro Building. Advanced Warehousing Compound. Km. 22 East Service Road. Cupang of capital stock of ACRO which has actually been subscribed and paid-up Muntinlupa City. It has an authorized capital stock of Four Million Pesos Y is a

2. ALTA. with TIN (P3.000.000.00) Hundred Pesos (P300.00) per share. The amount of capital stock of ALT'A registered with the SEC with principal office at Km 106 Maharlika into Ten Thousand (10.000) common shares with a par value of Three which has actually been subscribed and paid-up is Three Million Pesos Highway. Brgy. P. Gomez. San Mariano. Sta. Rosa Nueva Ecija. It has an authorized capital stock of Three Million Pesos (P3.000.000.00) divided is a domestic corporation duly

I Nens A( RO Distrihution antLogntieIne

Sectiom 40('n2,& hth AITA. ALPHA and ACRO

3. ALPHA. with TIN registered with the SEC with principal office at at Brgy. Cataning. Roman is a domestic corporation duly

Highway. Hermosa Bataan. It has an authorized capital stock of One Million Pesos (P1.000.000.00} divided into One Thousand {1.000) common shares with a par value of One Thousand Pesos (P1.000.00) per share. The amount of capita! stock of ALPHA which has actually been Subscribed and paid-up is One Million Pesos (P1 000.000.00).

4.On January 09. 2015. ACR0. ALTA and ALPHA entered into a Plan of

Merger. with ACRO as the Surviving Corporation. wherein the effective date of the merger is the approval of the SEC.

5 On April 06. 2015. a joint meeting of the Stockholders and the Board of Directors of ACRO. ALTA and ALPHA was heid. On the same date. all of

the members ot the respective Board ot Directors and Stockholders

approved the Plan of Merger. which has the following business purposes: representing all of the outstanding capital stock of the said companies

a) to strengthen the capital base of the surviving corporation:

b) to eliminate possible contlicts of interest between the constituent

companies since all functions will be directly managed by one body and be guided by a unified corporate objective: and

c) to obtain operating economies and efficiencies.

6. The Audited Financial Statements of ACRO as of March 31. 2015 indicate

that ACRO has total assets of Five Hundred Twelve Million Five Hundredl Thousand Two Hundred Seventy-Seven Pesos (P512.500.277.00), total

Stockholders' equity of Eighty-One Million Fifty-Six Thousand Thirteen Pesos (P81.056.013.00). Thousand I`wo Hundred Sixty-Four Pesos (P431.444.264.00) and total liabilities of Four Hundred Thirty-One Million Four Hundred Forty-Four

7. To implement the issuance of new shares in implementing the merger authorized capital stock from P4 Million to P150 Million. which was between the constituent corporations. ACRO simultaneously increased its approved on December 28. 2015. 8. On January 11. 2016. SEC approved the Article and Pian of Merger of the constituent corporations and issued the Certificate of Filing of the Plan and Articies of Merger on the same date.

9.Ou the Effective Date of the Merger. all the rights. powers. privitege. without turther aet or deed. exeept as may be otherwise proided. all and every other interest ot or belonging to or due to AL.TA and ALPHAl as of Mareh 31. 2015 up to the etfeetive date of merger. shall be taken and deemed to be transterred to and vested in \CRO by operation of law. immunities and franchises of ALTA and ALPHA. and all property. real or personal. bank deposits. rights and all receivables due on whatever account. including subscriptions to shares and other choses in action. and

Section 40Cu2 & b(h) ALTA. ALPHA and ACRO

10. Under the Deed of Exchange dated July 09. 2015 and pursuant to the Plan

of Merger, ACRO shall issue Two Hundred Eighty-One Thousand

(281.000) common shares with a par value of One Hundred Pesos

(P100.00) per share for the net assets of ALTA as of March 31. 2015.

while ACRO shall issue Three Hundred Forty-Two Thousand (342,000)

common shares with a par value of One Hundred Pesos (P100.00) per

share for the net assets of ALPHA as of March 31, 2015. The excess of the

net assets of ALTA and ALPHA over the total par value of the issued

shares of ACRO shall be treated as additional paid-in capital in the books

of ACRO. as the surviving corporation.

Based on the foregoing representations. you now request confirmation of your

opinion that:

The merger of ALTA and ALPHA with ACRO is a tax-free merger under

S 2 The transfer of assets of ALTA and ALPHA to ACRO is not subject to Section 27(E)(2) of the Tax Code. as amended: and The transfer of assets of ALTA and ALPHA to ACRO is not subject to ALTA and ALPHA is carried forward and credited against the normal income tax due of ACRO as of the effective date of the merger pursuant to donor's tax for lack of donative intent on the part of ALTA and ALPHA: The transfer of assets by ALTA and ALPHA to ACRO pursuant to the merger is not subject to value-added tax (VAT) and any unused input tax of ALTA and ALPHA as of the effective date of the merger is absorbed by ACRO, as the surviving corporation: The excess and unexpired' minimum corporate income tax (MCIT) of Section 40(C)(2) and (6)(b) of the Tax Code of 1997. as amended. such that no gain or loss shall be recognized for income tax purposes:

Pesos (200.00). or fractional part thereof. issuance of ACRO's shares to the stockhoiders of ALTA and ALPHA is subject to DST at the rate of One Peso (P1.00) on each Two Hundred documentary stamp tax (DST) under Section 199 (m) of the Tax Code of 1997, as amended 'by Republic Act (RA) No. 9243. However. the original

of escaping the burden of taxation. ACRO is being undertaken for a bona fide business purpose and not for the purpose interest of their respective stockholders. Hence. the merger of ALTA. ALPHA and liabilities of ALTA and ALPHA and the same will result in economies of scale and efficiency of operations of the merging corporations and make possible the more productive use of the properties of the constituent corporations. albeit, to the best Code of 1997. as amended. because ACR0 shall acquire/assume ail the assets and the contemplation of Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax The foregoing merger of ALTA and ALPHA with ACRO is a merger within In reply thereto. please be informed. as follows:

ALPHA. as the transferors of all assets and liabilities. to ACRO pursuant to the Plan Of Merger. Code of 1997. as amended.' that no gain or loss shall be recognized by ALTA and gain or loss for income tax purposes in accordance with Section 40(Cx2) of the 'Tax The merger of AL'TA. ALPHA and ACRO qualifies for non-recognition of

Section 40 'n21 & 6th) ALTA. ALPHA and ACRO

on its receipt of the assets and liabilities of AITA and ALPHA pursuant to and as a conseguence of the merger. Accordingly. no gain or loss shall be recognized by ACRO. as the transferee

gain that was recognized in the exchange. (Sec. 4( ((') (5) (a) of the Tax ('ode of of the properties. stocks or securities exchanged. decreased by (l) 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 1997. as amended shareholders of ALTA and ALPHA upon the exchange shall be the same as the bases On the other hand. the bases of the shares of stocks to be received by the

shall be the same as it wouid be in the hands of the transferors (ALTA and ALPHA) increased by the amount of the gain. if any. recognized to the transferor (ACRO) on the transfer. (Sec. 40 (() (5) (h). supra) The basis of the properties transferred in the hands of the transferee (ACRO)

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

Revenue Memorandum Ruling (RMR) No. 2-2002 dated June 10, 2002. ACRO shall 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 The substituted basis of the properties transferred by ALTA and ALPHA to

ALPHA's Audited Financial Statements as of March 31. 2015 shall be as follows: the assets transferred by ALTA and"ALPHA to "ACRO. based on ALTA and ALTA Accordingly, the allocated shares and liabilities, and the substituted basis of

Other current assets Inventories Cash Trade and other receivable Amount (in Php) Allocated Liabilities Aliocated Shares Basis (in Php) Substituted

Property and Other noncurrent TOTAL cquipment - Net assets

+. h Section 4((n2) & 6th) ALTA. ALPHA and ACRO 5

Incoine tax payable Advances from officers Trade and other payables Other current liabilities TOTAL Liabilities Amount (in Php)

ALPHA

Other Current Merchandise Cash on Hand and in Bank Receivable-Trade Advances to Inventory Employees Assets Accounts Amount (in Php) Liabilities Aflocated Allocated Shares Basis (in Php) Substituted 9.073,454.66

equipment Property and TOTAL

Accounts Payable - Others VAT Payable Other Current fiabilities TOTAL SSS, Philhealth A& PagIBIG Contributions Payable Philippine Income Tax Payable Loans Payable Accounts Payable - Trade Liabilities Amount (in Phn)

the patrimony of the donee, and (3) the intent to do an act of liberality (unimus valid donation are: (1) the reduction of the patrimony of the donor. (2) the increase in donundi). 2. Well-settled in our jurisprudence is the fact that the essential elements of a

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 honufide merger effected solely for business reasons. ALTA and ALPHA to donate to ACRO its assets since the transaction is purely for Clearly, there is no intention on the part of any of the parties to the merger

for the VAI. Thus. 3. Section 105 of the Tax Code of 1997. as amended. identifies the persons liable

trade or business. sells. burters. exchonges. leases goods or properties. renders services. and uny person who imports goods shull he suhject to the value-udded-tux tY AT: imposed in Sections I06 to 108 of this Code. "SECTION Io5.Persons Liable.iny person who. in the course of

Sectiom A0(H(3) & 6(b) ALTA. ALPHA and ACRO 6

XX XXX XXX. "

amended by RR No. 4-2007-. specifically excludes mergers from being subject to output tax. to wit: However. Section 4.106-8(b)(3) of Revenue Regulations (RR) No. 16-2005, as

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

XXX XXX XXX (h) Not subject to output tax. The VAT shall not apply to goods or properties existing as of the occurrence of the following.

XXX XXX XXX

shall he ahsorbed by the surviving or new corporation. the dissolved corporation. as of the date of merger or consolidation. (3) Merger or consolidation of corporations. The unused input tax of

Output tax" under the said Section. unused input VAT of ALTA and ALPHA as of the effective date of merger will be transferred to and absorbed by ACRO 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 Thus. the above-mentioned transaction shall not be subject to VAT. and any

carried forward and credited against the normal income tax due of ACRO for the three (3) immediately succeeding taxable years pursuant to Section 27(E)(2) of the Tax of and ALPHA, as of the effective date of the merger as of year 2015. if any. shall be 1997. as amended: 4. The excess and unexpired minimum corporate income tax (MCIT) of ALTO

9243, in relation to Section 40 (C) (2) of the Tax Code of 1997. as amended. (BIR Ruling No. 100-2017 dated March 2. 201 -) under Section 199 (m) of the Tax Code of 1997. as amended by Republic Act No 5. No DST is due on the transfer of assets made pursuant to the Plan of Merger

DST. The Court held. as follows: shares. should be treated as a single and continuing transaction subject only to one Internul Revenue (C.T.A. Case No. 6477 dated April 20. 2003). the Court stated that all the integral parts of the merger including the surrender of shares in exchange for In the case of Pilipinas Shell Petroleum Corporation vs. (ommissioner o)

transactions which are an integral and inherent part of the corporation in exchange for the shuares surrendered hy the shureholders of the ahsorhed corporation. transaction. Is imposition. therefore. should he onty once shares of stock to the stockhotders of the ahsorhed hecuuse it is really imposed on the privilege to enter into a And in a statutory merger, there is only one transaction. i.e.. the issuunee by the surviving corporation of its own "As earlier stated. DST is in the nature of an excise tax All other

2 now exempted from VAT under Section 34 of RA No. 10963, amending Section 109 of RA Nos. 8424 and 337

Section 40('W2+ & hth) ALTA. ALPHA und ACRO

shares in exchange for shares. transfer of assets tonger be subject to another round of DST: In other words ull the integral parts of the merger (e.g.. surrender of assumption of liabilities. etc.) should be treated as a single merger, such us the absorption of real property, should no

and continuing transaction suhject only to one DST. The transfer of real property is not a transaction separate and continuation of the initial transaction which was previously consummated. distinct from the merger hut an integral part or a mere

shall be imposed on the original issuance of shares by ACRO to the stockholders of ALTO and ALPHA as a consequence of the merger as provided under Section 174 of the Tax Code of 1997, as amended. 6. DST at the rate of P1.003 on each P200 par value, or fractional part thereof.

(NOLCO) under Section 34(D) (3) of the Tax Code of 1997. as"amended, and as I. It is to be emphasized, however, that the net operating loss carry-over

implemented by RR No. 14-2001. of ALTO and ALPHA. if any. is not one of their assets that can be transferred and absorbed by the surviving corporation. ACRO, as this privilege or deduction can be availed of by ALTO and ALPHA only Accordingly. the tax-free merger does not cover the NOLCO of ALTO and ALPHA.

8. The retained earnings of the absorbed corporations amounting to Twenty-Two

for ALTA and Thirty-Three Million Two Hundred Seventy-Nine Thousand Two Hundred Fifty-One Pesos (P33.279.251.00) for ALPHA are subject to the ten percent shareholders pursuant to Section 24 (B) (2) of the Tax Code of 1997. as amended. Million One Hundred Seventy-Two Thousand Four Hundred Three (P22.172.403.00) (10%) fina! withhoiding tax on dividends constructively received by its individual (BIR Ruling No. 1+22-18 dated December -, 2018)

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

1. A copy of the plan of reorganization. together with a statement executed detail all transactions incident to, or pursuant to the plan: under the penalties of perjury. showing in full the purposes thereof and in

2. A complete statement of all cost or other basis of all property. including ali 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 : The old DST is used since the merger became effective prior to Republic Act No. 10963

Section A01(n2+& h(h) ALTA. ALPHA and ACRO

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 connection with a corporate reorganization shali 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 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.

C Records in substantial form shall be kept hy every taxpayer who participates in

property received from the exchange. 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 disposition of such stock of securities and other a tax-free exchange in connection with a corporate reorganization showing

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

transferred to another transferee. merger occurred. and in the taxable years until the subject properties are subsequently statements for the taxable year in which the merger occurred a statement to the effect that they hoid such assets/shares acquired in a merger and the year in which such Such parties shall include as a note to their respective audited financial

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

stock involved. and the fact that no gain or toss was recognized as a result of such merger: provided however. that any "violation hy the Register of Deeds or by the Certifieates of Title (TCT) and Certilicates of Stock. the date the merger was executed. the original or historical cost of acquisition of the properties or shares of Furthermore. the parties shall cause to annotate at the back of the Transfer

SectiomA0('u3 & 6ih) ALTA. ALPHA and ACRO 9

Corporate Secretary of this condition shal! be penalized under Section 269 or 275. as the case may be. of the Tax Code of 1997. as amended.

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

However. 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.

Very truly yours. 10w391x

Commissioner of Internal Revenue CAESAR R. DULAY

I K- T

Annex "a

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

lournal Entry to{ Record the Tax Free Exchange Investment in (transteree's naine) (nvestiment in (naine of dissolving corp.) Dividend Income (net of FWT on dividend) XXX.XX XXX. xX x XX.xx Investment in (issuing corp. for shares of stock)xxx<x (Other Assets (as applicable} PPE - Land & Iinprovement (for real props.) Ltabilities Capital Stock Additional Paid-[n Capital XXX.XX XXX XX XXX.XX XXX xX XXX.XX

of (nume of issuing corporation/s) with aggregate fair inarket value of transferee) with par value of P. To record the Tax-Free tixchange of investinent in (share tyne) shares y in exchange for (type and no. of share) of (name of I per share. (share type) shares of (name of issuing corporation s), and other assets To record the Tax-Free Exchange of real properties. invesiment in with aggregate fair market value of p. assuined resulting from merger. in exchange for (type and no. of share) of (name of (ransferee) with par value of P -.. per share. --- Including liabilities

Batance Sheet Notes Entry investment includes (no. and type of sharers) with par value of of investment in (no. and type of share/s) of (issuing corporation/s) covered by Stock Certificate No/s. total cost of (substituted basis) and which have fair market value as of the date of exchange amounting to p In (name of transferee) resulting from the Tax-Free Exchange which were acquired for the Real properties, investment in (no. and type of share/s) of (issuing) evidenced by Plan of Merger and Articles of Merger, including the corporations). and other assets were acquired through merger as properties, investment's, and other assets were previously covered hy increase of the Authorized Capital Stock of (name of transferee). approved by the Securities and Exchange Commission on (date). The total acquistion cost/substituted cost to (name of transferee) of the Investment/s amounts to (FMV at the tine of the exchange). The real by (issuing corporation:s) and are now presenty covered hy Stox:k Cerificate No's. Transfer Certificate of Title and Stock Certificate No s. Shares in the name of (name of transferee) constituting (no. and type of share s) (totat] issued

Proforma Fntries] Sale Transfer Suhsequent to Record Cash or Accounts Receivables To record suhsequent saletransfer of investment acqured thru tax- Proviston for Fax as tollows free exchange (urrent I [Stock trmsacton Net ( apital ( jain Net (apntat (iqunst Stuck Transactron Investment in (name ot t(ransteree) Cjain on Sale of Investment [ax P'ayable Fatlvp 1' Pie rw anans realzed cn rax-free echange Ly"a IM excess T ax Kate^ I I-t I IIt i*+ in F MV caf im esiments at the time ot Ciains reabzed on subsequent sale of cthene price s rhe ta-trerechange it uhsqixnt sak Imc'stment/ Yultiply by Irsesiment at the tune YXX. X K.X X. X Latount XXX. XX A Sx XXX.XX XXX.XX {wtod free exchange Cuttent Provision for Tax as follows Cash or Accounts Receivables To record suhsequent sale transfer of investment s acquired thru tax- Act ( apital Gans Investment in (name of issuing corp.) Cjain on Sate of Property jes* Stock Irans PPE: - Land & Iinprovement Other Assets Tax Payable T Hx Ivpe [at[ype FTT I a ( Rk No i. 2IM Tas Rate* Tax Rate 1 ut t" otal I Payabi I Selinst price ot tnvestmeat ot se tome iins realed on suhsequen sate ot I wuhs quent saie Wudtiply hy Ins estnent's Motiply by XXX XX XXX XX mnunt ( I mnunt XXX.XX X x WAX.XX

Hed in the computaton ot Nr (aptal (uns f.as ind Strick I'ransuetton Tasa the ume Itt the tav-free exchaspe shall appis] I!e touf mar HI suhsequent salers on wy inserotm1 rax-tre i the cwhae it.a H rPMV nputarion ot Reahed on Suhsequent Ve nt (nsestment (usttuted Ha55) het (apmat (u un sale of onlnted shares Yilinv Price wdt d hareodr Ithe ot the oher yepettsy t.. ned it m utal beinstettedta p tmnd thac Tax Payabk su Here made betore Jandar 1. 2018. the tas rates sis ul the stock ar serurtees retsised h 5U ...Lh.... Purn 'd. I .s .ud tht I ant Ir(cd ls.w H Wni. :I SIV at the rome ot suhvequent saletranster V-Akled Ta Starnp Ias+DSI hue rrlected in te takeaation Dx:umentar in om sale of properttes fractional par J s 'a for cen PIcir} and rhe((ut I uHeCL Hour Market Vakue it MVot the FhTi F omal ( orporine lncme {vtv I} rres at the tome ot strbseqthent Ifinster kne pree sonal sane or tn: H

I