March 16, 1993 BIR RULING NO.

108-93 PROPERTY DIVIDENDS OF SEACOM STOCKHOLDERS SUBJECT TO 0% FINAL WITHHOLDING TAX 21 (c) (2) 276-91 108-93 Villaraza & Cruz 5/F LTA Building 118 Perea Street Legaspi Village Makati, Metro Manila Attention: Attys. Inocencio P. Ferrer, Jr. Lucito A. Tan Othelo C . Carag This refers to your letter dated 11 March 1993 stating that your client, SEA COMMERCIAL COMPANY, INC. (SEACOM), is a domestic corporation with an authorized capital stock of Thirty Million Pesos (P30,000,000.00), divided into Thirty Thousand (30,000) Preferred shares of stock and Two Hundred Seventy Thousand (270,000) Common shares of stock, all with a par value of One Hundred Pesos (P100.00) per share, of which One Hundred Fifty Five Thousand Three Hundred Two (150,302) Common shares of stock are issued and outstanding as of 31 December 1991; and that as of 31 December 1991, it had a total stockholder's equity in the amount of Thirty Four Million Seven Hundred Nine Thousand Five Hundred Five Pesos (P34,709,505.00), which include unrestricted retained earnings in the amount of Nineteen Million Four Hundred Sixty Nine Thousand Four Hundred Forty One Pesos (P19,469,441.00); that on 15 June 1992, the Corporation declared all of its unrestricted retained earnings as of 31 December 1991 as dividends in favor of stockholders of record as of 15 June 1992, payable on or before 15 April 1993, that said dividends shall be distributed in the form of cash in the amount of Seven Million Five Hundred Twenty Thousand Three and 08/100 Pesos (P7,520,003.08), and the following properties with a total book value of Eleven Million Nine Hundred Forty Nine Thousand Four Hundred Thirty Seven and 92/100 Pesos (P11,949,437.92): cdta Properties 1. Book Value

a determined portion of a parcel of land situated in Barrio Mapuntod, Municipality of Mandaluyong; P375,206.55

2.

a parcel of land situated in Barangay Labogon,

City of Mandaue; 3.

932,491.00

a parcel of land situated in Mandaue, Island of Cebu; 103,678.00

4.

a parcel of land situated in Kauswagan and Carmen, City of Cagayan de Oro; 150,000.00

5.

a parcel of land situated in Barrio of San Dionisio, Municipality of Paraaque; and 60,000.00

6.

a determined portion of a parcel of land situated in Barrio San Dionisio, Municipality of Paraaque; and 854,243.90

7. 8.

a parcel of land situated in Cebu City. 3,424,596.97 shares of stock of Sea Commercial Company, Inc. in Rio Southeast Asia, Inc.6,049,221.50 Total P11,949,437.92 ===========

that the aforementioned real and personal properties are capital assets of the Corporation, which are not used and not intended to be used by the Corporation in its ordinary course of business; that the properties declared as dividends were recorded in the books of the Corporation at their book values; that the total book value of the property dividends is equivalent only to Twenty-Five and 80/100 percent (25.8%) of SEACOM'S assets for the year ended 31 December 1991; and that the Corporation continues to do business and its stockholders have no intention of liquidating the corporation after the declaration of property dividends. cdtech In connection therewith, you now request confirmation of your opinion as follows: "1. The declared property dividend consisting of real estate properties and shares of stock in another corporation can be recorded at their respective book value in the books of SEACOM, and SEACOM's stockholders can record the dividends thus received at SEACOM's book value. . . .; "2. the proposed property dividend which shall be received by the stockholders of SEACOM shall be subject to a final withholding tax of zero (0%) percent, and the receiving stockholders shall not be subject to any income or

capital gains tax arising from their receipt of these real estate properties as property dividend. ...; "3. SEACOM shall not be subject to any income or capital gains tax on the difference between the fair market value and the real estate properties declared and distributed as property dividends. ...; "4. Upon subsequent sale or other disposition of the real estate properties received as property dividends by SEACOM's stockholders, the basis of the taxation of the subsequent sale or other disposition shall also be its book value at the time of the dividend distributions; and acd "5. That the amount of the documentary stamp tax on the Deeds of Conveyance to be executed between SEACOM and the recipient stockholders covering the real estate properties declared as property dividend shall be based on the book value of said estate properties ..., at the rate of ten (10) pesos for every one thousand pesos (P1,000.00), or a fractional part thereof, of the book value of the real properties declared as dividends (Section 196, Tax Code, as amended). On the other hand, the documentary stamp tax on the Deeds of Conveyance to be executed between SEACOM and the recipient stockholders covering the shares of stock to be declared as property dividend shall be based on the par value of the shares of stock at the rate of fifty centavos (P0.50) for each two hundred pesos (P200.00), or fractional part thereof, of the par value of the shares of stock declared as property dividends (Section 176, Tax Code, as amended). In both cases, the documentary stamp tax shall be due and payable on the day of execution of the Deeds of Conveyance (Section 173, Tax Code, as amended)." In reply thereof, I have the honor to inform you as follows: 1. That the property dividend shall be recorded at the book value in the books of both the issuing corporation and the recipient stockholder. The BIR Ruling No. 21(c)(2)-028-89-130-89 applying Sections 250 and 251 of Revenue Regulations No. 2 stating that dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested are income to the recipient to the amount of the full market value of such property when receivable by individual stockholders has already been modified having been rendered obsolete by Executive Order No. 37 (effective August 1, 1986) subjecting to income tax at 0% effective January 1, 1989, dividends received from a domestic corporation and the share of an individual partner in a partnership subject to tax under Section 24(a) of the Tax Code (BIR Ruling No. 276-91 December 26, 1991) 2. That we confirm your opinion that the proposed property dividend which shall be received by the stockholders of SEACOM shall be subject to a final withholding tax of zero (0%) percent, and the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of these properties as property dividend. (Section 21(c)(2) of the Tax Code, as amended by Executive Order No. 37). However, certificates authorizing transfer of real

estate properties without payment of the capital gains tax shall be secured from the Revenue District Officer of the Revenue District where the property is located before said properties are transferred in the name of the recipient stockholders (BIR Ruling No. 028-89 dated February 22, 1989). Similarly, certificates authorizing transfer of shares of stock without payment of the capital gains tax shall be secured from the Revenue District Officer of the Revenue District where the principal place of office of the corporation declaring the dividends is located. It shall be the ministerial duty of the Revenue District Officer to issue said certificates. 3. That we also confirm your opinion that SEACOM shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real estate properties declared and distributed as property dividends. This is because there is no realized gain considering the fact that the value used at the time of distribution is the book value. 4. That upon subsequent sale or other disposition of the property received as dividends by the stockholders, the basis of such shall also be its book value at the time of the dividend distribution. 5. That the amount of the documentary stamp tax on the Deeds of Conveyance to be executed between SEACOM and the recipient stockholders covering the real estate properties declared as property dividends shall be based on the book value of said real estate properties. The documentary stamp tax that shall be collected shall be at the rate of ten (10) pesos for every one thousand pesos (P1,000.00), or fractional part thereof, of the book value of the real properties declared as dividends (Section 196, Tax Code). On the other hand, the documentary stamp tax on the Deeds of Conveyance to be executed between SEACOM and the recipient stockholders covering the shares of stock to be declared as property dividends shall be based on the par value of the shares of stocks, at the rate of fifty centavos (P0.50) for each two hundred pesos (P200.00), or fractional part thereof, of the value of the shares of stock declared as property dividends (Section 176, Tax Code). In both cases, the documentary stamp tax shall be due and payable on the day of execution of the Deeds of Conveyance (Section 173, Tax Code)." This shall serve as your authority to obtain, after payment of documentary stamp taxes due, the necessary certificates authorizing transfer of the real estate properties from the Revenue District Officer of the Revenue District where the real estate properties are located and the certificate authorizing transfer of the shares of stock from the Revenue District Officer of the Revenue District where the principal office of SEACOM is located. aisadc EUFRACIO D. SANTOS Deputy Commissioner of Internal Revenue

C o p y r i g h t 2 0 0 8 C D T e c h n o l o g i e s A s i a, I n c.