BIR Ruing No.

DA-082-01

2001-05-08 | BIR Ruing No. DA-082-01

175, 176, 40 (A)

DA-208-99, 250-82, 158-98

Philippine Long Distance Telephone Company

6th Floor, Ramon Cojuangco Building
Makati Avenue
Makati City

Gentlemen :

This refers to your letter dated September 8, 2000, the pertinent portion of which is quoted as follows:

"PILTEL DEBT RESTRUCTURING

"Pilipino Telephone Corporation ("Piltel") is a domestic corporation authorized to render

telecommunications services and is a subsidiary of the Philippine Long Distance Telephone Company
("PLDT"), also a domestic corporation authorized to render telecommunications services in the
Philippines.

"Pursuant to a Restructuring Agreement (the "Agreement") to be executed by and among Piltel, PLDT,
and various local and foreign banks and other financial institutions and suppliers of Piltel (collectively,
the "Lenders"), the parties shall enter into a debt restructuring plan for Piltel regarding its debt
obligations (the "PiltelDebt") to the Lenders.

"The Agreement shall set out the summary of the Piltel debt restructuring plan as agreed upon among
Piltel, PLDT and the Lenders with an end view of restructuring the Piltel Debt and at the same time,
increase PLDT's equity investment in Piltel and maintain at least 75% interest therein, on a fully diluted
basis.

"In summary, the restructuring plan as set out in the Agreement shall be as follows:

1. Phase I . 50% of the Piltel Debt shall be converted into Peso denominated Series B Class 1
Convertible Preferred Stock to be issued by Piltel (the "Piltel CPS"), 25% is to be restructured into a
10-year term loan and the remaining into a 15-year term loan;

2. Phase II . Upon conversion, the Lenders shall be mandatorily required to exchange their Piltel CPS
into PLDT CPS.

"Conversion of Piltel Debt into Piltel CPS

"Under the first phase of the Plan, 50% of the Piltel Debt shall be converted into Piltel CPS at a
conversion price of P340.00.
Therefore, each Lender shall be entitled to one (1) Piltel CPS for every P340.00 Piltel owes to each of
the Lender.

"Currently, 50% of the Piltel Debt amounts to approximately Eighteen Billion Two Hundred Eighty Five
Million Seven Hundred Forty Eight Thousand Two Hundred Eighty Seven Pesos and Ten Centavos
P18,285,748,287.10. Hence, at a conversion price of P340.00 per share, Piltel will be required to issue
a total of 53,781,613 Piltel CPS shares with a par value of P2.00 per share.
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 "Exchange of Piltel CPS into PLDT CPS

"As part and parcel of the Plan and in order to increase PLDT's stake in Piltel, the Lenders shall, in turn,
be required to mandatorily exchange their Piltel CPS into PLDT CPS with PLDT. PLDT, therefore, shall
become the holder of the Piltel CPS. The Plan provides that the Lenders shall be issued by PLDT one
(1) PLDT CPS in exchange for every five (5) Piltel CPS they hold. The issue price of the PLDT CPS
shall be P1,700.00.

"Thus, with a total of 53,781,613 Piltel CPS shares, PLDT shall be required to issue a total of
10,756,323 PLDT CPS with a par value of P5,00 per share.

"The conversion of the Piltel Debt into Piltel CPS and further into PLDT CPS shall occur successively
and on the same day.

"Conversion of PLDT CPS into PLDT Common Shares

"The PLDT CPS is convertible into PLDT common share at the conversion rate of one (1) PLDT CPS
for one (1) PLDT common share, at any time from the issue date up to a period of seven (7) years, at
the option of the holder.

"However, on the seventh (7th) year anniversary of the issuance of the PLDT CPS, there will be a
mandatory conversion of the PLDT CPS into PLDT common shares at the conversion rate also of one
(1) PLDT CPS for one (1) PLDT common shares."

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

"a. The conversion of the Piltel Debt into Piltel CPS is not subject to a DST as the DST thereon has
already been previously paid;

"b. The transfer of the Piltel CPS from the Lenders to PLDT in exchange for PLDT CPS is subject to
DST at the rate of P1.50 for each P200.00 or fractional part thereof of the par value of such share or a
total of P806,725.50;

"c. The original issuance of PLDT CPS in exchange for Piltel CPS is subject to DST at the rate of P2.00
on each P200.00 or fractional part thereof of the par value of such share or a total of P1,075,632.00;

"d. The transfer of the Piltel CPS in exchange for PLDT CPS is not subject to capital gains tax there
being no taxable gain resulting from the transaction;

"e. The eventual conversion of the PLDT CPS into PLDT CS is not subject to a DST as the DST
thereon has already been previously paid."

In reply, we confirm your opinion that:

1. A documentary stamp tax is an excise tax imposed on the privilege of entering into transactions,
rather than on the document. Hence, being an excise tax, it is paid only once even when there are
various or series of documentation to be followed as long as there is only one transaction involved. But
the liability to the tax and the amount thereof are determined from the facts of the document itself. (BIR
Ruling No. 520-93 dated December 27, 1993, BIR Ruling No. 084-97 dated July 29, 1997, BIR Ruling
No. DA-565-12-16-98). In BIR Ruling No. DA-208-99 dated April 5, 1999 the BIR ruled that the
conversion of bonds into common shares is a continuing transaction subject to only one documentary
stamp tax.

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 Considering that the Piltel Debt does not have a convertibility feature at the time the parties entered
into such contract, its conversion into Piltel CPS cannot be considered as one interrelated transaction
subject to only one documentary stamp tax. Such being the case, the issuance of the Piltel CPS as a
result of the conversion of the Piltel Debt is subject to DST at the rate of P2.00 on each P200.00 or
fractional part thereof pursuant to Section 175 of The Tax Code of 1997.

2. The transfer of the Piltel CPS from the Lenders to PLDT amounting to 53,781,613 shares with a par
value of P2.00 per share (at a conversion price of P 1,700.00) or P107,563,226.00, is subject to DST at
the rate of P1.50 on each P200.00 or fractional part thereof or a total of P806,725.50 pursuant to
Section 176 of the Tax Code of 1997.

3. The issuance of PLDT CPS in exchange for Piltel CPS is subject to DST at the rate of P2.00 on each
P200.00 or fractional part thereof of the par value of such share or a total of P1,075,632.00 pursuant to
Section 175 of the Tax Code of 1997.

4. The gain, if any, on the transfer of the Piltel CPS in exchange for PLDT CPS will be computed as the
excess of the fair market value of the PLDT CPS received by each creditor over the acquisition cost of
such creditor in the Piltel CPS. Such fair market value and/or acquisition cost shall be computed as the
number of PLDT CPS or Piltel CPS, respectively, multiplied by their respective issue value (that is
P1,700 per share and P340 per share, respectively).

5. The eventual conversion of the PLDT CPS into PLDT CS is not subject to a DST since it does not
involve any transfer of ownership to another shareholder. It is a single, continuing transaction not
distinct from the subscription contract for which the required DST has already been paid. Hence, the
issuance of Piltel CS and PLDT CS is not subject to another DST imposed under Section 175 of the
Tax Code of 1997.

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, and/or any of the requirements imposed in this letter are not
complied with, then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) EDMUNDO P. GUEVARA

Deputy Commissioner
Legal and Inspection Group

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