August 16, 2005 BIR RULING NO. 013-05 000-00 Mr. Antonio P. Salvador 43 Maria Eva St.

, Tierra Pura Homes Tandang Sora Avenue Quezon City Sir: This refers to your letter dated February 25, 2002 requesting in effect for a ruling on whether or not the proposed transfer of your real property under a revocable trust agreement is exempt from transfer tax. aSDHCT Documents show that Spouses Antonio P. Salvador and Patricia C. Salvador, Trustors, are the owners of a certain real estate property, located at 43 Maria Eva St., Tierra Pura Homes, Tandang Sora Avenue, Quezon City covered by TCT No. 49054, containing an area of 640 sq.m., more or less, registered with the Register of Deeds of Quezon City; that Spouses Salvador intends to change and register the Trust Property with the Register of Deeds of Quezon City, to A. & P. Salvador Living Trust with Antonio P. Salvador as the Trustee and Patricia C. Salvador as the Successor Trustee in case Antonio P. Salvador dies ahead of his spouse; that should Patricia C. Salvador die ahead of Antonio P. Salvador, Antonio P. Salvador shall remain the Trustee for and in behalf of his children who are identified as Surviving Trustees under the Revocable Living Trust Agreement of Spouses Antonio and Patricia Salvador, viz: Alexander, Benjamin, J. Cesar, Dana, Edwin, Ferdinand and Gemma, all surnamed Salvador (in the order of their seniority and age); that whoever is the eldest will act as the First Surviving Trustee for as long as he lives, and as soon as he/she passes away, the next eldest, will act as the next Second Surviving Trustee who shall take over the control and management of the Trust Property, and so on and so forth until the turn of the youngest Surviving Trustee comes, who shall then act as the last Surviving Trustee for and in behalf of the grandchildren who are living and born from Spouses Salvador's Surviving Trustees; that should Antonio P. Salvador become incapacitated due to physical or mental disability, the Successor TrustorTrustee (Patricia C. Salvador) shall manage and administer the Trust Property by renting out, mortgaging or selling the same as she shall deem wise and appropriate, by paying to Antonio P. Salvador or distributing the proceeds, on his behalf, such sum or income from such transactions for his comfort and welfare; that upon Antonio P. Salvador's death, the procedure of transfer of authority above described shall be followed; that after Antonio P. Salvador's demise, if Successor TrustorTrustee (Patricia C. Salvador) decides to rent out the Trust Property, she shall equally distribute the income derived therefrom to the Surviving Trustees and if she decides to sell the same, the proceeds shall be equally distributed to the seven (7) Surviving Trustees after deducting her one-half (1/2) share of the rental income or proceeds of the sale, as the case may be; that should the Successor Trustor-Trustee (Patricia C. Salvador) pass away while performing her duties as such, the First Surviving Trustee (Alexander C. Salvador) shall automatically take over her functions and duties; that should the First Surviving Trustee decide to sell the Trust Property, he is authorized to distribute the whole proceeds of the sale on a share-and-

share-alike basis among the Trustees; that the same procedure or scheme shall be followed in the transfer of the Trust Property, its corresponding rights and benefits in case of the death of the Surviving Trustee while managing and administering said property; that the sale of the Trust Property during Antonio P. Salvador's term as Trustor-Trustee or that of the term of his wife as Successor Trustor-Trustee or that of his children as Surviving Trustees, shall terminate the Revocable Living Trust Agreement; that the Trustor-Trustee, the Successor Trustor-Trustee and all the Surviving Trustees shall serve without bonds; and that the Declaration of Trust of A.P. Salvador Revocable Living Trust shall extend to and be binding upon the heirs, creditors and assigns of the Trustor-Trustee, Successor Trustor-Trustee and the Surviving Trustees. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trust shall be taxed at the rate of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the same Code, whichever is higher. aTcIAS Such being the case, and considering that there is no actual transfer of ownership over the aforementioned property, as a result of the transfer of the property to A & P Salvador Living Trust from Spouses Salvador, the said transfer is not subject to the 6% capital gains tax under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. DA-299-08-11-00 and BIR Ruling No. DA-143-03-09-00) Also, no donor's tax shall be imposed since there is no transfer of ownership in this instance. Moreover, the deed covering the transfer of the aforementioned property to A & P Salvador Living Trust by Spouses Salvador, as trustors, is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. DA-299-08-11-00 and BIR Ruling No. DA-143-03-09-00) However, the notarial acknowledgment of said deed is subject to the documentary stamp tax imposed under Section 188 of the Tax Code of 1997. HATICc On the other hand, Section 85(C) of the Tax Code of 1997 provides that interest in the property of which the decedent has at any time made a transfer by trust or otherwise is included in decedent's gross estate. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated to the extent of any interest therein, of which the decedent has at any time made a transfer by trust, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power by the decedent to alter, amend, revoke or terminate, or where any such power is relinquished in contemplation of the decedent's death. In a revocable transfer of property, such as in this case, the property continues to be owned by the transferor during his lifetime notwithstanding the transfer, as he still retains beneficial ownership. The rationale for taxing such transfer in trust at the time of death of the trustor is to reach transfers which are really substitutes for testamentary disposition and thus prevent evasion of estate tax. To be exempt from estate tax, the transfer by inter vivos must be absolute and outright with no strings attached whatsoever by the transferor, which is not the case here. HScCEa

In other words, all properties covered by the Revocable Living Trust Agreement of Spouses Antonio P. Salvador and Patricia C. Salvador shall be considered as forming part of the decedent's gross estate subject to estate tax pursuant to Section 85 of the Tax Code of 1997 upon the death of the owner of the property. Thus, contrary to your observation, the transfer of the aforesaid property during your lifetime and that of your spouse's, as trustors, does not preclude the imposition of the estate tax prescribed under Section 84 of the Tax Code of 1997 upon the death of the owner of the property. In view of the foregoing, in case of your death or that of your spouse, the proposed transfer of your real property under the Revocable Trust Agreement shall be subject to estate tax to the extent of either your or your spouse's interest therein, as the case may be, at the time of death pursuant to Section 85(C) of the Tax Code of 1997. SHaIDE Furthermore, in the event of your death or that of your spouse, and if either you or your spouse, as the case may be, decide/s to sell the Trust Property and shall then equally distribute the proceeds of the same to your children after deducting your or your spouse's one-half (1/2) conjugal share, you or your spouse, in effect, shall be considered to have waived your or your spouse's share in the estate of the decedent spouse in favor of your children. Such waiver of inheritance tantamount to a donation of property subject to the donor's tax imposed under Section 98 of the Tax Code of 1997. The donor's tax shall be based on the total fair market value of the property comprising the share of the surviving spouse in the estate of the decedent spouse. The fair market value of the property shall be determined in accordance with Section 6(E) 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, then this ruling shall be considered as null and void. DCASEc Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC, Commissioner of Internal Revenue

February 21, 2006 BIR RULING [DA-053-06] Sec. 86 105-99; DA-573-99 SGV & Co 6760 Ayala Avenue Makati City Attention : M.F.A. Balili Tax Division Gentlemen : This refers to your letter dated January 06, 2006 requesting for a ruling whether your client, the Heirs of the Late Salvador H. Laurel, is liable for donor's tax and whether the amount of estate tax paid should be excluded in the computation of the net distributable estate in arriving at the distributive shares of the heirs. cEaACD

It is represented that on January on 27, 2004, the late Salvador H. Laurel (SHL) passed away leaving behind Mrs. Celia Diaz-Laurel and eight (8) children as heirs; that several real and personal properties, such as houses and lots, residential apartments, residential condominium units, office condominium units, farmlands, cash, cars, shares of stock and golf shares with a total value of P282,002,628.58 formed part of the Estate of the late SHL (the "Estate"); that the real properties are located in the following areas: a) Barangay Addition Hills, Mandaluyong City b) Pioneer Highlands, Mandaluyong City c) Barangay San Antonio, Pasig City d) Global City, Fort Bonifacio, Taguig City e) Mabini, South Lipa City f) Binubusan, Lian, Batangas g) Luyahan, Lian, Batangas h) Barangay San Antonio, San Pedro, Laguna i) Barangay Iruhin, Tagaytay City j) Filinvest Pagsanjan, Cainta while the following comprised the personal properties: a) Cash b) Golf shares in Baguio Country Club, Calatagan Golf and Country Club, Camp John Hay Country Club, Canlubang Golf and Country Club, Evercrest Golf Club Resort, Inc., Manila Golf and Country Club, Mt. Malairayat Golf and Country Club, Sta. Elena Golf and Country Club and Wack Wack Golf and Country Club; c) Shares of stock in Lyceum of the Philippines, Inc., Sound Development Corporation, LAHI, Inc., Dorel Development Corporation, and PLDT; and (d) Six (6) motor vehicles. that on July 23, 2004, Mrs. Celia Diaz-Laurel, surviving spouse of the late SHL, filed the estate tax return of her late husband with the Bureau of Internal Revenue (BIR), Revenue District Office (RDO) No. 41, Mandaluyong City, pursuant to Section 90 of the Tax Code of 1997; that as the Estate was not in a financial position to pay in full the total amount of the estate tax, Mrs. Laurel, in her own behalf, and on behalf of the other surviving heirs, requested an extension of time to pay balance of the said tax; that inasmuch as the Estate lacked sufficient cash to pay the estate taxes due, Mrs. Laurel obtained approval from RDO No. 41 to sell certain golf shares and apply the proceeds thereof to the payment of estate taxes; that as a sign of her earnest desire to pay the estate tax, Mrs. Laurel made an initial payment of P5,000,000.00 as partial fulfillment of the estate tax due; that this was later followed by payments of P11,421,250.00 on February 16, 2005, P837,225.00 on February 21, 2005, and P5,043,535.00 on May 04, 2005 to RDO No. 41; that on June 16, 2005, RDO No. 41 sent a notice of deficiency tax due in the amount of P7,833,012.12 to the Administrator of the Estate which was likewise duly paid; that in sum, the Heirs paid a total of P30,135,015.13 in estate taxes and interest; that on July 01, 2005, RDO No. 41 sent a letter to the Administrator of the Estate, acknowledging full payment of the estate tax; that the letter further acknowledged their duty to issue the corresponding CAR, provided the deed of extrajudicial partition is submitted to them. IHTaCE

It is further represented that on July 31, 2005, the Heirs, by themselves and/or represented by Mrs. Celia Diaz-Laurel as guardian or attorney-in-fact of some of them, met and decided not to divide the properties pro indiviso, for the reason that some of the heirs wanted specific properties for their own individual sentimental preferences; that in the course of the discussion, the heirs agreed to allow Mrs. Celia Diaz-Laurel to have first choice of the properties comprising her one-half (1/2) share in the estate as surviving spouse, with the net distributable estate to be divided, to the extent possible, in accordance with their intestate shares taking into consideration the preferences of each individual heir; that the said method resulted in an uneven distribution of the estate wherein several heirs received more than the value of their supposed shares, with some heirs receiving less; that the heirs agreed to reimburse Mrs. Celia Diaz-Laurel for the estate taxes amounting to P30,135,015.13 which she advanced on everyone's behalf; that on August 26, 2005, the heirs executed a Deed of Extrajudicial Settlement and Partition; that all the real and personal properties comprising the gross estate the value of which was P282,002,628.58 were distributed among the heirs; that in compliance with the directive of the July 1, 2005 letter from RDO No. 41, you requested, on behalf of the heirs, for the issuance of the Certificate Authorizing Registration (CAR) for the properties forming part of the Estate, and submitted the Deed of Extrajudicial Settlement and Partition to the BIR on October 19, 2005; that upon follow-up on October 21, 2005, you were informed by RDO No. 41 that they could not issue the tax clearance and the CAR on the ground that a certain alleged heir by the name of Pia Pilapil-Gonzalo, contested your request; that subsequently, you learned that in a letter dated September 20, 2005, Ms. Gonzalo, through her counsel, Atty. Bayani Loste of the Fortun Narvasa and Salazar Law Offices, did not contest the Deed, nor did she request to hold in abeyance the issuance of the tax clearance or of the CAR; that she merely requested for a copy of the Estate Tax Return, the list of properties and copies of the transfer certificates of title (TCTs) covering the real properties involved; that in the letter endorsement of the BIR's Revenue Region No. 7 dated December 15, 2005, your client's right to the issuance of the CAR was upheld; that the same office, however, ruled that the heirs were liable for donor's tax and directed RDO No. 41 to study the matter and determine the appropriate tax due, to wit: "In the instant case, there appears to have an implied waiver of the inheritance among the heirs. . . . Accordingly, said implied waiver shall be treated as an act of disposition of the share of the inherited property since the benefits thereof are not enjoyed by everybody but only by one or more heirs and therefore the same shall be subject to the Donor's Tax. In this connection, a review of the Extrajudicial Settlement be made to determine if the same would result into unequal distribution of the inheritance taking into account the value of the estate as a whole viz a viz the value of the share to be received by the heirs in accordance with the Extrajudicial Settlement. . . . " (Emphasis supplied) EacHSA In reply thereto, please be informed that in legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always a right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion (Arts.

1018, 977, 967, Civil Code of the Philippines). However, if the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect all act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs (Arts. 1050, 1051, 1016, Civil Code). In the instant case, there is no specific repudiation on the part of one or some of the heirs in favor of another heir or heirs to the exclusion of the other heirs. Everyone received a share in the estate. While the values of the properties received by each heir were not equal, this by itself cannot be interpreted as repudiation. Since most of the estate left behind by the late Salvador H. Laurel consisted of real property, it would be impossible, if not absurd, to expect that the properties distributed to each of the heirs would be of equal value, especially since they decided to divide the estate in accordance with their individual preferences for and sentimental attachments to the properties. Further, on the issue of whether the amount of estate tax paid should be excluded in the computation of the net distributable estate in arriving at the distributive shares of the heirs, this Office rules otherwise. Section 86 of the 1997 Tax Code, as amended, enumerates the items allowed as deductions against the gross estate of the decedent to be able to determine the net taxable estate. Such enumeration is exclusive thereby those items not mentioned therein are deemed excluded. Considering that the amount corresponding to the estate tax paid is not among those items enumerated in Section 86 of the Tax Code, as amended, it is therefore deemed excluded in the items allowed as deductions against the gross estate. Thus, for taxation purposes, specifically for the purpose of computing the net taxable estate, the amount corresponding to the properties sold to cover the amount of estate tax still has to form part of the gross estate of the decedent. The said amount still has to be considered in the distribution of the corresponding shares due to the heirs though the same, in actuality, may not be treated as part of the heirs' respective shares in the estate. aTHCSE Lastly, since the correctness of the payment of the estate tax due on the Estate of the late Salvador H. Laurel has already been established, the revenue district office concerned is hereby directed to forthwith issue the CARs covering the properties forming part thereof. 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. HDTSIE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

May 25, 2006 BIR RULING [DA-338-06]

Secs. 84, 85 & 86 Ms. Mary Jane Pula-Tagal No. 42 N. Parias St., Bahay Toro Quezon City Madam: This refers to your letter dated March 13, 2006 requesting in effect for an exemption from the payment of the estate tax on the estate of the late Martin William Rogers, a British national who died on November 19, 2002 a resident of Pasay City. DTEAHI By virtue of an Affidavit executed by Andrew John Rogers on May 31, 2005 before Solicitor Helen Timson, mfg solicitors, Edgbaston House, Walker Street, Wellington, Telfor TFIIHF, you were appointed as the authorized representative of the estate of the late Martin William Rogers. Martin William Rogers was granted by the Bureau of Immigration and Deportation (BID) a Special Resident Retiree's Visa on December 5, 2001. He was a member of the Retirement Program of the Philippine Retirement Authority (PRA) which membership was cancelled in view of his demise. He was not gainfully employed nor did he own any real property in the Philippines. However, he maintained a bank account at Metrobank-Head Office, Metrobank Plaza Annex Bldg., Sen. Gil J. Puyat, Makati City. From the foregoing, you are requesting to the effect that the estate of the decedent be exempt from the imposition of the estate tax and that a tax clearance be issued in your favor. In reply, please be informed that under Section 84 of the Tax Code of 1997, as amended, there shall be levied, collected and paid upon the transfer of the net estate as determined in accordance with Section 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed in accordance with the following schedule: If the net estate is: Over But Not Over The Tax Shall Be Plus Of the Excess Over P200,000 Exempt P200,000 500,000 0 5% P200,000 50,000 2,000,000 P15,000 8% 500,000 2,000,000 5,000,000 135,000 11% 2,000,000 5,000,000 10,000,000 465,000 15% 5,000,000 10,000,000 And Over 1,215,000 20% 12210,000,000 Section 85 of the same Code provides that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. aDSAEI On the other hand, Section 86(A) of the same Code provides for the computation of the net estate of a citizen or a resident. Thus, among the items allowed as deductions to the value of the gross estate of a citizen or a resident decedent, which items of deductions are common, are the following, (1) expenses funeral expenses (maximum of P200,000.00) & medical expensed (maximum of P500,000.00), (2) indebtedness claims against the estate, and (3) standard deduction in the fixed amount of P1M.

Considering that the late Martin William Rogers is a resident decedent, the items of deductions enumerated in Section 86(A) of the Tax Code, as amended, shall be allowed for purposes of computing his net estate. Thus, if after deducting the allowable items of deductions enumerated in Section 86(A) from his gross estate, the remainder appearing is not more than P200,000.00, then his net estate is exempt from estate tax. On the other hand, if the value of his net estate exceeds P200,000.00, the excess shall be subject to the estate tax as computed under Section 84 of the same Tax Code. 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. DcAaSI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

January 5, 2000 BIR RULING NO. 010-00 Sec. 86 (A)(4) 000-00 010-2000 Mr. Luis Catriz Taa 534 Third Street. Sta. Mesa Manila Sir: You stated in your letter dated February 1, 1999 that your cousin bought a lot in 1957 and titled it in his name when he was still single; that in 1964 he got married in the church; that the couple (husband and wife) constructed a house in 1967 on the said lot where they stayed and lived up to the time of his death in May, 1998; that the couple are childless; and that the couple had not agreed on a property regime to govern them prior to the celebration of their marriage. cda In view of the foregoing, you now pose the following queries: 1. Who is the legal heir(s) of the property? 2. Is the property conjugal or exclusive? In reply, please be informed that since the couple got married in 1964, the provisions of the old Civil Code shall govern them. Under Article 119 of the same Code, relative community or conjugal partnership of gains shall govern the property relations between husband and wife in the absence of marriage settlement. Such being the case, the property regime of the couple shall be governed by relative community or conjugal, partnership of gains. The lot is a capital property of your cousin the same having been brought to the marriage as his own using his exclusive money prior to marriage pursuant to Article 148 (1) and (4) of the Civil Code. (Hartske vs. Frankel 54 Phil. 156; Gafes vs. Salvio, 36 Phil. 221; and Gonzales vs. Miller, 69 Phil. 341) cdtai

On the issue of the legal heir(s), please be guided by Articles 995, 997 and 1001 of the Civil Code which provide, viz: "ART. 995. In the absence of legitimate descendants and ascendants, and illegitimate children and their descendants, whether legitimate or illegitimate, the surviving spouse shall inherit the entire estate, without prejudice to the rights of brothers and sisters, nephews and nieces, should there be any, under Article 1001." "xxx xxx xxx "ART. 997. When the widow or widower survives with legitimate parents or ascendants, the surviving spouse shall be entitled to one-half of the estate, and the legitimate parents or ascendants to the other half." prcd xxx xxx xxx "ART. 1001. Should brothers and sisters or their children survive with the widow or widower, the latter shall be entitled to one-half of the inheritance and the brothers and sisters or their children to the other half." Accordingly, where your cousin is survived by his legitimate parent(s) and his wife, they shall share equally in the inheritance: one-half to the legitimate parents and onehalf to the wife. On the other hand, where you cousin is survived by his wife and his brother(s)/sister(s) or their children, one-half of the estate will go to the wife and the other half to the brothers(s)/sister(s) or their children. The nephew(s) and niece(s) shall inherit by right of representation. For purposes of the estate tax, the value of the house and lot shall be included as part of the gross estate. The one-half share of the surviving spouse in the conjugal dwelling is then deducted from the total gross estate to arrive at the total net estate of the decedent. Thereafter, the one-half share of the decedent to the family home (house and lot) is allowed as a deduction from the net estate provided that in the current fair market value of that one-half portion exceeds one million pesos, the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality pursuant to Section 86(A)(4). cdlex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue April 7, 2006 BIR RULING [DA-220-06] Ms. Felipa Go Alcantara Administrator #95 Guyabano St., Potrero Malabon City Madam: This refers to your letter dated April 4, 2006 in effect requesting for legal opinion whether the income derived from the properties of the decedent after his death forms part of the gross estate for estate tax purposes. At the outset, "Estate Tax" has been defined as the tax levied on the transmission of the properties of the decedent at death and is based on the value of the net estate

regardless of the number of heirs or their relationship to the decedent. (BIR Ruling No. 095-98 dated June 19, 1998) DEScaT The first step in the computation of estate tax is the determination of the gross estate. The gross estate is the total value of all property, whether real or personal, tangible or intangible, the actual and beneficial owner of which was the decedent at the time of his death. Pursuant to Section 88(B) of the Tax Code, the estate shall be appraised at its far market value as of the time of death. Considering the foregoing discussions, should the income of the properties left by the decedent be included in the gross state due to late filing of the estate tax return? We answer in the negative. Under the New Civil Code of the Philippines, the rights to the succession are transmitted from the moment of death (Art. 777, Civil Code). The properties, rights and obligations of a deceased person are deemed submitted to the heirs and beneficiaries at the moment of death. Consequently, by operation of law, the properties of the decedent at the time of death are considered transferred to his heirs immediately after his death. The heirs will then become co-owners of the properties pending their partition. Accordingly, any increase in the value of the properties left by the decedent will not form part of the gross taxable estate of the decedent but should be attributed to the undistributed share among the heirs. The pronouncement of the Supreme Court in the case of Lorenzo vs. Posadas (64 Phil. 353), though the particular subject is the inheritance tax, can be considered in the determination of the value of the gross taxable estate. Thus said the Supreme Court: "If death is the generating source from which the power of the state to impose inheritance taxes its being and if, upon the death of the decedent, succession takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency affecting the value or any subsequent increase or decrease in value." In view of all the foregoing, this Office is of the considered opinion that the increase in the value of the properties left by the decedent after his death shall not form part of the gross taxable estate because the subsequent appreciation is immaterial for estate tax purposes. IHCacT Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service

May 10, 2006 BIR RULING [DA-311-06] Secs. 24, 85 & 196 Malabon Education Institution Gov. Pascual Avenue, Malabon City Attention : Mr. Francisco V. Cayco

President Gentlemen : This refers to your letter dated March 1, 2005 requesting a ruling that the transfer of real property by virtue of a Deed of Quitclaim or Waiver of Claim if exempt from the capital gains and documentary stamp taxes. cCaSHA The facts as represented are as follows: On February 2, 1968, Spouses Florentino and Elisa Cayco sold to Malabon Educational Institution (MEI for brevity) a parcel of land situated in Gen. Luna St., Bayan-bayanan, Malabon, Metro Manila, with an area of 3,452 square meters and covered by Transfer Certificate of Title (TCT) No. 185050. Spouses Cayco passed away with MEI not able to secure from them the Deed of Absolute Sale of the above transaction. Elisa Cayco died on May 2, 1970 while Florentino Cayco died on August 29, 1976. Recently, MEI discovered that the title of the above-mentioned property was already transferred to the heirs of the above spouses as it was included in their estate. Through a series of negotiations and after the presentation of several documents, including among others, the vouchers, checks and accounting records showing that MEI had indeed already paid for the subject property and had already declared it as part of MEI's asset even prior to the death of the spouses, the heirs of Spouses Cayco were fully convinced that MEI had really purchased the subject property, thus, it should not had been included in the estate of the spouses. Consequently, the heirs of Spouses Cayco executed a Deed of Quitclaim or Waiver of Claim without consideration in favor of MEI, in whose name the title to the land should have been registered. From the foregoing, you are requesting a ruling that the transfer of the land by virtue of a Deed of Quitclaim or Waiver of Claim is not subject to the capital gains and documentary stamp taxes. caHCSD In reply, please be informed that under Section 85 of the Tax Code of 1997, as amended, the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated to the extent of any interest therein. In other words, all properties to which the decedent had interest at the time of his death shall be considered as forming part of his gross estate. Stated otherwise, all properties to which the decedent had relinquished his right of ownership prior to his death shall not formed part anymore of his gross estate. In the case at hand, despite the fact that the decedent spouses and MEI had not executed the contract of sale over the subject property, it is evident, however, that the same had already been sold to MEI during the lifetime of the spouses. MEI was able to present several documents, including among others, the vouchers, checks and accounting records showing that MEI had indeed already paid for the subject property and had already declared it as part of its assets even prior to the death of the spouses. The foregoing taken into consideration, this Office therefore rules that the subject property is not part of the estate of the decedent spouses and that it rightfully belongs to MEI as a purchaser for value. Thus, the recourse taken by the heirs of Spouses Cayco in reconveying the subject property to MEI is just proper. cDECIA

In view of the foregoing, the Deed of Quitclaim or Waiver of Claim made by the heirs of Spouses Cayco in favor of MEI, executed for the purpose of reconveying the subject property to its rightful owner, thus, without monetary consideration, is not subject to the capital gains and documentary stamp taxes imposed under Section 24 and 196 of the 1997 Tax Code, as amended, respectively. (BIR Ruling No. 108-98 dated June 29, 1998 cited in DA-325-2004 dated June 16, 2004). Moreover, the transfer of the above-mentioned real property is exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative intent on the part of the heirs of Spouses Cayco. (BIR Ruling DA-146-2000 dated March 10, 2000) 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 as null and void. cHECAS Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

June 16, 2005 BIR RULING [DA-260-05] Sections 99 to 107 BIR Ruling No. DA-035-02 Atty. Jose Ma. Q. Austria 3751-C Bautista St. Makati City Sir: This refers to your letter dated February 16, 2005 requesting on behalf of your client, Manuel P. Gorospe, for a ruling on the following issues: 1. Whether or not an extrajudicial settlement of the estate of a deceased must first be filed, despite the fact that a petition for letters of administration has already been granted by a court of competent jurisdiction on the estate of the deceased; and 2. Whether or not an estate of a decedent, under administratorship proceedings, filed with a court of competent jurisdiction, is required to pay estate taxes prior to a transfer to a third party, not a beneficiary of the estate, of a portion of the same, authorized under a competent court order, for the purpose of maintaining the estate alone and not distribution to the heirs or beneficiaries. HTSIEa You stated in your letter that the late Benjamin K. Gorospe passed away on March 15, 1984; that shortly thereafter, his wife Isabel P. Gorospe filed a Petition for Administration of his estate before the Regional Trial Court of Misamis Oriental, Branch 20 thereof, located in Cagayan De Oro City and docketed as SP. PROC No. 1928, wherein she was eventually appointed administratrix of the estate of the late Benjamin K. Gorospe; that on April 1, 1998, Isabel P. Gorospe, as the administratrix of the estate of the late Benjamin K. Gorospe, filed a Motion for Authority to Sell a portion of the estate located in Sampaloc, Manila and covered by TCT No. 70759 of the Registry of Deeds, Manila; that the purpose of said sale was to realize "funds in payment of real property taxes and other incidental expenses incurred in the

administration of the estate"; that on the same date, Judge Alejandro M. Velez, Presiding Judge of Branch 20 of the Regional Trial Court of Misamis Oriental, located in Cagayan de Oro City, issued and Order granting the Motion and authorizing the sale of the parcel of land, indicated in the Motion and, covered by TCT No. 70759 of the Registry of Deeds of Manila; that on December 27, 1996, Isabel P. Gorospe executed a Special Power of Attorney in favor of Manuel P. Gorospe, to sell the said parcel of land; that on November 17, 2004, Isabel P. Gorospe, executed a second Special Power of Attorney in favor of Manuel P. Gorospe, for the same purpose; that on December 1, 2004, Manuel P. Gorospe sold the said property to Shirley Cua for Four Million Pesos (PhP4,000,000.00) in accordance with a Deed of Sale of even date; that on said date, the capital gains tax in the amount of Two Hundred Forty Thousand Pesos (PhP240,000.00), the documentary stamp tax in the amount of Sixty Thousand Pesos (PhP60,000.00) and the certification fee, in the amount of One Hundred Pesos (PhP100.00), were paid to the BIR, RDO 33; that despite payments made, the BIR RDO 33 refused to issue the Certificate Authorizing Registration (CAR) on the following grounds: 1) An Extrajudicial Settlement of the estate of the late Benjamin K. Gorospe must first be filed by the heirs; and 2) Estate taxes must be paid based on the said Extrajudicial Settlement and prior to transfer of the estate or any portion thereof; and that it is your contention that the filing of the estate tax return and the payment of the estate tax is not yet due since the distribution of the estate to the heirs is still have to be done by the court after the administratrix has completed her duties, and further, the transfer in issue is to third party, by the estate, and not to the heirs, and only for the purpose of maintaining the estate. In reply, please be informed that as consistently held by this Office, the settlement of estate tax shall be governed by the law obtaining at the time of death of the decedent. Thus, then Section 100 of the 1977 Tax Code, as amended, provides that "SEC. 100. Gross Estate. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, However, That in the case of a nonresident decedent who at the time of his death, was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his taxable estate." For this purpose, the estate tax is based on the value of the net estate regardless of the number of heirs or their relationship to the decedent. Under then Section 99 of the same Code (now Section 84 of the Tax Code of 1997), an estate tax computed in accordance with the schedule found therein shall be imposed based on the value of the net estate of every decedent, whether resident or nonresident of the Philippines, as determined in accordance with Sections 100 and 101 of the same Code (now Section 85 and 86 of the Tax Code of 1997). In this connection, under Section 103 of the 1977 Tax Code, as amended, (now Sec. 88 of the Tax Code of 1997), the estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of the time of death shall either be whichever is higher of (1) the fair market value as determined by the Commissioner, or (2) the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, and shall be binding upon all concerned

for purposes of computing any internal revenue tax based on the value of the property. From the foregoing, the estate of the late Benjamin K. Gorospe is liable to pay the estate tax imposed under then Section 99 of the 1977 Tax Code, as amended, (now Sec. 84 of the Tax Code of 1997) the law in force at the time of his death in 1984, based on the fair market value at the time of the death of the decedent as determined by the City Assessor of the above-mentioned realties comprising the net estate of the decedent. Furthermore, under then Section 104 of the same Code (now Sec. 89 of the Tax Code of 1997), in all cases of transfers subject to tax, or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos (P3,000.00), the executor, administrator, or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice to the Commissioner of Internal Revenue. SETAcC Likewise, under then Section 105(b) of the same Code (now Sec. 90(B) of the Tax Code of 1997), the return required under Section 105(a) of the same Tax Code, as amended, (now Sec. 90(A) of the Tax Code of 1997) shall be filed within nine (9) months from the decedent's death. The Commissioner of Internal Revenue shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for fling the return. Further, pursuant to then Section 107(a) of the 1977 Tax Code, as amended, (now Sec. 91 (A) of the Tax Code of 1997), the estate tax imposed under then Section 99 of the same Code (now Sec. 88(B) of the Tax Code of 1997), shall be due and payable at the time the return is filed by the executor, administrator, or the heirs to the Commissioner of Internal Revenue or to the Regional Director, Revenue District Officer or Collection Agent of the city or municipality where the decedent was domiciled at the time of death. When the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the court or two (2) years in case the estate is settled extrajudicially pursuant to Section 107(b) of the same Code (now Sec. 91(B) of the Tax Code of 1997). In view of the foregoing, we beg to disagree with your contention that the filing of the estate tax return and the payment of the estate tax is not yet due since the distribution of the estate to the heirs of Benjamin K. Gorospe is still to be done by the court after the administratrix has completed her duties, and further, that the transfer was made in favor of a third party, and not to the heirs, only for the purpose of maintaining the estate thereby there is no need of settling the obligation of the estate by paying the estate tax to the Government. Rather we rule that the administrator or any of the heirs of the late Benjamin K. Gorospe should have filed the estate tax return and pay the corresponding estate tax due thereon within the nine-month period from the time of death of the decedent as prescribed by the above cited provisions of Sections 105(B) and 107(a) of the 1977 Tax Code, as amended. The execution by the heirs or by the court of the deed or order, respectively,

providing for the settlement of the estate did not and will not exempt the estate of Benjamin K. Gorospe from filing the estate tax return and payment of estate tax thereon. Considering that succession takes place upon death of the decedent and that his gross estate is determined by including the value at the time of his death of all his property for purposes of computing the estate tax to be imposed, the deed of partition or the order of the court providing for the partition of the estate to the heirs, therefore, is not an indispensable requirement before the administrator or any of the heirs could pay the estate tax. The herein administratrix, therefore, is advised to file, together with the other requirements, the inventory of the properties comprising the estate of the late Benjamin K. Gorospe. ISAcHD Moreover, the above property disposed in order to raise the funds to be used to maintain the said estate, still is considered as part of the estate for purposes of determining the gross estate of the decedent and for purposes of computing the estate tax due thereon. On the other hand, considering that the estate tax due on the estate of Benjamin K. Gorospe was not paid by the heirs or by herein administratrix within the time prescribed under Section 105(b) of the 1977 Tax Code, as amended, there shall be collected as an addition to the estate tax due, an interest upon such unpaid amount at the rate of twenty percent (20%) per annum, from the due date until it is paid. However, the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three (3) years. (Sec. 113, 1977 Tax Code, as amended). Moreover, an ad valorem penalty of twenty-five percent (25%) of the estate tax due shall be imposed for failure to make and file an estate tax return within the time prescribed by law. (Sec. 114, 1977 Tax Code, as amended). Finally, if after payment of the estate tax, final settlement of the estate shall be rendered by the court, the incidental expenses incurred in the intestate proceedings shall be allowed as deductions to the gross estate. (Sec. 101(a)(1)(B), 1977 Tax Code, as amended) The heirs, therefore, shall have a right to the restitution of the proportional part of the estate tax paid. (Sec. 117, 1977 Tax Code, as amended). HETDAa This serves as your authority to file the estate tax return of the late Benjamin K. Gorospe and pay the corresponding estate tax due thereon. DCISAE Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group

March 27, 2006 BIR RULING [DA-169-06] Sec. 90(D) 123-96 Atty. Dennis R. Manzanal 10/F, Ramon Magsaysay Center Roxas Boulevard, Manila

Sir : This refers to your letter dated December 27, 2005 requesting in behalf of your client, Maximo K. Ilusorio, one of the heirs of the late Potenciano Ilusorio (the "Decedent"), for an approval to file the estate tax return of the estate of the decedent and pay the estate tax due thereon at the office of the Commissioner of Internal Revenue (CIR). ASTcEa The facts as represented are as follows: On December 8, 2005, the Commissioner of Internal Revenue, through his authorized representative, issued Ruling No. DA-495-2005, recognizing that the settlement of the estate of the decedent has been burdened with serious difficulties. Such difficulties resulted from the fact that the immediate members of the Ilusorio family have filed close to two hundred (200) cases against each other. In particular, there are two (2) probate cases involving the decedent's estate, one of which is pending in the Regional Trial Court of Paraaque City, Special Proceedings (SP) No. 01-0140, and the other in the Regional Trial Court of Baguio City, S.P. No. 01-1067. The petitioner in the Paraaque case claims that Potenciano Ilusorio's residence was in Paraaque City while the petitioner in the Baguio case claims that his residence was in Baguio City. The issue of which of these two courts should take cognizance of the probate of Potenciano Ilusorio's Last Will and Testament, to the exclusion of the other, is currently pending resolution before the Supreme Court in the case entitled "Erlinda I. Bildner, et al. vs. Erlinda Ilusorio, et al." G.R. No. 164252. The primary issue being litigated in the above-mentioned controversy is the subject of venue as determined by the actual residence of the decedent at the time of his death. The residence of the decedent is a highly contentious matter and, as evidenced by the manner by which such issue has been addressed by the heirs, it is possible that the filing of the estate tax return and the payment of the estate tax in either contested venues would spawn another series of complaint or oppositions. As the heirs are in disagreement as to where the estate tax return should be filed, it is your position that it would be to the best interest of all concerned if the filing of the estate tax return and the payment of estate tax due on the decedent's estate be made at a valid and neutral office which, in this case would be the office of the CIR. Thus, to stop the interest from accruing, your client, together with some heirs, intend to file a tentative or preliminary estate tax return soonest and pay the taxes due thereon. aIcHSC In reply thereto, please be informed that except in cases where the Commissioner of Internal Revenue permits, the estate tax return shall be filed and the estate tax paid with the Revenue District Officer, Collection Agent or any authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there is no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue (Sec. 90 (D) of the Tax Code of 1997; Sec. 9(C), Rev. Regs. No. 2-2003). Such being the case and based on the aforestated justifiable reason, your request that the estate tax return of the estate of Potenciano Ilusorio be filed and payment of the estate tax due thereon be made at the office of the CIR is hereby approved. Your client therefore is advised to file the estate tax return and pay the corresponding taxes at Revenue District Office (RDO) No. 39, South, Quezon City, as the office of the CIR is under its jurisdiction. (Revenue Memorandum Circular No. 66-99)

In connection therewith, the RDO concerned shall issue a letter to the RDOs where herein decedent may have been considered as domiciled at the time of his death confirming that the tax due on the transmission of his estate has been paid already and to further check if there might still be some properties registered in the name of the decedent which were not included in the estate tax return filed with the above RDO. HEDSIc Moreover, under Revenue Regulations No. 11-96 dated August 7, 1996 amending Revenue Regulations No. 13-85, as amended, as amplified by Revenue Memorandum Order No. 34-96, dated November 15, 1996 and further revised by Revenue Memorandum Order No. 66-99 dated August 9, 1999, regarding the preparation and issuance of Tax Clearance Certificate (TCL) [formerly Certificate Authorizing Registration (CAR)] for registration of real estate transactions in line with the computerized tax administration, the estate tax clearance shall be issued by the RDO of the revenue district where the decedent was domiciled or registered, regardless of the location of his properties. If the decedent is not registered, the executor/administrator or any of the heirs shall register the Estate of the decedent with the Revenue District Office in the place of residence of the decedent at the time of his death, and the TCL/CAR shall be issued by the RDO of said district office. (BIR Ruling No. 123-96 dated November 21, 1996 citing BIR Ruling 100-96 dated September 13, 1996) However, since in the instant case, the domicile of the decedent is not yet determined, the TCL/CAR may, therefore, be issued at RDO No. 39, South, Quezon City, but only upon verification by the RDOs where the decedent was considered domiciled that there are no other properties registered in the name of the decedent which may be properly included in his estate. 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. DHECac Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

July 18, 2001 BIR RULING NO. 029-01 LEGASPI & ASSOCIATES Suite 708 Landsdale Tower Mother Ignacia corner Timog Avenue Attention : Atty. Domingo Z. Legaspi Tax Counsel Gentlemen: This refers to your letter dated November 15, 2000 on behalf of your clients JORGE MISAEL, VLADIMIR GEORGE, ROSALINA RUBY, RUBY ANNA and KERRI LYNN, all surnamed NERI (Neri children for brevity).

It is represented that on March 27, 1989, the Regional Trial Court of Makati, Metro Manila, Branch 149 rendered its decision in Civil Case No. M-001 entitled Jorge B. Neri vs. Ruby Vera-Neri approving, in toto, the Compromise Agreement entered into by and between the spouses Jorge B. Neri and Ruby Vera-Neri; that paragraph V of said Compromise Agreement provides that: ESCacI "V. The property situated at Dasmarias Village, Makati, Metro Manila (Lot 12, Block 6, No. 2291 Magnolia Street) and the house and other improvements erected and or introduced therein shall be held by the plaintiff Jorge B. Neri in trust (with right of usufruct during his lifetime) for the parties' five children (Jorge Misael, Vladimir George, Rosalina Ruby, Ruby Anna and Keri Lynn)." that the Neri children are now all of legal age, the youngest child Keri Lynn having reached the age of twenty (20) years old on February 6, 2000; that title to the property, Transfer Certificate of Title No. 304319, is in the name of Ruby Vera-Neri, married to Jorge B. Neri; that the Neri children now desire to formally transfer to their names the title to said real property; that the Register of Deeds of Makati City required, among others, the submission of the Certificate Authorizing Registration; that the Revenue District Officer of Revenue District Office No. 50 advised you to seek a ruling from the Office of the Commissioner of Internal Revenue on whether or not said transfer is subject to tax. Pursuant to the advise of the Revenue District Officer of RDO 50, you seek for a definitive ruling on the following issues: I. Is paragraph V of the Judgment on Compromise, supra., taxable? II. If it is subject to tax, what kind of tax or taxes? III. Is said transfer liable for penalties or surcharges? IV. If it is liable for penalties and surcharges, what is the reckoning period of the imposition thereof? V. Is the value of the usufruct deductible from the value of the property for purposes of computing the taxes due on the transfer? In reply, please be informed of the following: I. & II. Whether or not the Transfer is Subject to Tax The transfer of property by gift under paragraph V of the Judgment on Compromise, being a transfer of property without any consideration or compensation, is subject to donor's tax imposed under Section 91 of the NIRC of 1977, as amended, now Section 98 of the NIRC of 1997 quoted below: "SECTION 91. Imposition of Tax. (A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section 99. HDCTAc (B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible." III. & IV. Whether or not the Transfer is Subject to Penalties or Surcharges Section 97 of the NIRC of 1977, as amended, now Section 103 of the NIRC of 1997, provides: "SECTION 97. Payment of Tax. (a) Time and place of payment of tax. The donors tax imposed by Section 92 shall be paid at the time the return is filed. The tax

shall be paid by the donor to the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality in which the donor was domiciled at the time of the transfer or if there is no legal residence in the Philippines with the Office of the Commissioner of Internal Revenue." Furthermore, Section 9 of Revenue Regulations 17-93 dated August 30, 1990 states that: "SECTION 9. WHAT LAW GOVERNS THE IMPOSITION OF THE DONOR'S TAX? . . . The donor's tax shall not apply unless and until there is a completed gift. (Am Jur. 2d, p. 845) The transfer of property by gift is perfected from the moment the donor knows of the acceptance of the donee; and completed by the delivery to the donee either actually or constructively of the donated property. (Art. 734 Civil Code; Richardson, 39 BTA 927, Macomber, T.C. Memo, 6-6-51) Thus the law in force at the time of the perfection/completion of the donation shall govern the imposition of the donor's tax." The pivotal issue therefore in your query is the date the transfer of property by gift was completed. It is your contention that: "Though the right was created upon the finality of judgment, the operative act of entitlement to formally effect transfer may happen only when the child or children concerned have reached the age of majority in effect, creating a suspensive condition i.e. happening or non-happening of a future and uncertain event, reaching the age of majority. But when the condition is fulfilled, the entitlement retroacts to the date of constitution of entitlement." IScaAE We do not agree. A valid donation of real property in a public instrument transfers not only ownership but also possession because the execution of such instrument is one form of delivery unless of course, there is a contrary intention which can be inferred from the deed (Ortiz vs. Court of Appeals, 97 Phil. 46). Therefore, the donation under consideration was completed on March 27, 1989 when the Court approved the Compromise Agreement entered into by and between the spouses Ruby Vera-Neri and Jorge B. Neri. Upon the approval of said document, the ownership of the said property was transferred from Ruby Vera-Neri to the Neri children. From that time on, the Neri children could have transferred to their name title to the property. The fact that the Neri children decided to transfer the title to the property in their name only when the youngest among them, i.e., Keri Lynn, reached the age of twenty (20) years old on February 6, 2000 does not negate the fact that the transfer by gift of the said property was completed on March 27, 1989 when the Court approved the Compromise Agreement entered into by and between the spouses Ruby Vera-Neri and Jorge B. Neri. The donor's tax, therefore, should have been paid thirty (30) days from March 27, 1989 pursuant to Section 97 of the NIRC of 1977, as amended, supra. Thus the donation mentioned above is subject to surcharges and interest computed from April 27, 1989 not February 6, 2000. V. Whether or not the Value of the Usufruct is Deductible from the Value of the Property Donated: Section 95 of the NIRC of 1997, as amended, now section 102 of the NIRC of 1997, provides:

"SECTION 95. Valuation of gifts made in property. If the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the provisions of paragraph two, Section 81 shall apply to the valuation thereof." Section 81, paragraph 2, now Section 88 (B) states that: "SECTION 81. Determination of the value of the estate. . . . (b) Properties. The estate shall be appraised at its fair market value as of the time of death. However, the appraised value of real property as of the time of death shall be whichever is higher of (1) The fair market value as determined by the Commissioner, or DaAIHC (2) The fair market value as shown in the schedule of value fixed by the Provincial and City Assessors. (As amended by PD No. 1994) The property donated is valued based on the fair market value as determined by the Commissioner of Internal Revenue or as shown in the schedule of value fixed by the Provincial and City Assessors. Therefore, the value of the usufruct shall not be deducted from the value of the property donated as it is not provided by law. The donor's tax is imposed on the transfer of property not on the receipt of the property. For purposes of the donor's tax what is pertinent is the value of the property transferred by the donor not the value of the property received by the donee. The fact that the usufruct of the property donated was given to the father of the Neri children until his death may diminish the value thereof from the point of view of the latter but it does not, in any way, reduce its value from the point of view of what the donor transferred by gift. This ruling is being issued based on the foregoing facts as represented. However, if upon investigation, the facts are different, this ruling is considered void. aCTADI Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue

August 24, 2005 BIR RULING NO. 016-05 Puno and Puno 12th Floor East Tower Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Attys. Helena Rosales-Calo and Rosalinda F. Rivera Gentlemen : This refers to your letter dated November 6, 2000 stating that your client, FGP Corporation, is a corporation duly organized and existing under the laws of the Philippines and is registered with the Board of Investments, with a preferred Pioneer Status, as a new operator of a 500MW combined-cycle gas turbine power generating plant (Power Plant); that on April 30, 1998, FGP Corporation entered into a Gas Sale

and Purchase Agreement (GSPA) with Shell Philippines Exploration B.V. (SPEX), pursuant to which SPEX is obligated to deliver natural gas to FGP Corporation; that FGP Corporation owned an onshore gas pipeline (the gas pipeline) that was purposely constructed to transport the natural gas from the SPEX refinery located in Tabangao, Batangas to FGP Corporation's Power Plant located in Santa Rita, Batangas; that on August 1, 2001, FGP Corporation transferred ownership of the gas pipeline to SPEX upon the business consideration that SPEX would be obligated to use the gas pipeline for the delivery of natural gas to FGP Corporation and all risks attendant on such delivery would be on SPEX; that as a consequence of the transfer of ownership, SPEX thereafter assumed all the risks associated with the gas pipeline and SPEX would thus operate, maintain and preserve the gas pipeline at its own cost; and that the first delivery of natural gas is expected to take place sometime in 2002 and shall continue until about twenty-two (22) years thereafter. aSACED In your supplemental letter dated October 22, 2001, you clarified matters relative to your request on November 26, 2000 that the transfer by FGP Corporation of its pipeline and other related assets to SPEX shall not be subject to donor's tax, capital gains tax and corporate income tax; that to fortify your request, you stated that the Malampaya Gas Field is covered by Service Contract 38 (Service Contract) between the Government and SPEX; that the Service Contract provides for a productionsharing agreement that entitles the Government to 60% share of the net proceeds; that from such share, the Government is expected to earn substantial revenues expected to exceed US$9 Billion over the life of the gas field; that the Philippines will have substantial foreign exchange savings of about US$700 Million (depending on crude oil prices) for every year of foregone oil importation; that FGP Corporation owns the power plant that is one of the anchor loads of the Malampaya Gas; that under the GSPA between FGP Corporation and SPEX, FGP Corporation undertook to pay for the gas on a "take-or-pay" basis, i.e., FGP Corporation is obligated to pay for the natural gas delivered by SPEX, regardless of whether FGP Corporation utilizes the delivered gas or not; that in the course of several discussions between FGP Corporation and its Lenders (Lenders), the delivery point of the gas was one of the most contentious issues; that the original gas pipeline constructed by SPEX stretched from Malampaya, Palawan to SPEX's refinery in Tabangao, Batangas; that the GSPA originally contemplated that the delivery point would be in SPEX's refinery; that FGP Corporation's power plant was eight kilometers away from SPEX's refinery; that although SPEX was willing to construct a pipeline offshore, and charge the cost thereof to FGP Corporation, it would have been an extremely expensive exercise and increase the price of electricity; that FGP Corporation thus agreed to itself construct an 8 kilometer pipeline onshore (the pipeline that is the subject-matter of the transfer from FGP Corporation to SPEX); that the Lenders were opposed to the idea of FGP Corporation assuming any risk in transporting the natural gas from SPEX's refinery to FGP Corporation power plant; that given the take-orpay arrangement with SPEX, FGP Corporation would be bound to purchase the natural gas even if there is a major leak in the 8-kilometer pipeline and the gas never reaches the power plant; that the Lenders, therefore, required FGP Corporation to transfer the ownership, and consequently, the risks over the said pipeline to SPEX; that the GSPA was thus amended to the effect that (a) the delivery point of the

natural gas would be in the Plant Site; and (b) title to, and risk of loss of or damage to, natural gas shall be borne by SPEX during the transportation stage, and shall pass to FGP Corporation only at the new delivery point; that the transfer of ownership of the pipeline from FGP Corporation to SPEX was undertaken solely to transfer the delivery point and thereby comply with the Lenders' requirement to transfer the risks of transporting and delivery to SPEX; that FGP Corporation did not transfer the pipeline for the pursuit of profit; that FGP Corporation did not even get reimbursed for the cost of the pipeline; that the pipeline was transferred to SPEX for a consideration of US$1; that the value of the pipeline will not form part of SPEX's assets; that as a result, SPEX will not claim any depreciation expense with respect to the pipeline; that neither will it result in an additional fiscal burden to the Government; that if the value of the pipeline were taken up in the books of SPEX, such value would form part of SPEX's capital cost recovery, thereby reducing the revenues available for distribution to the government (which would consequently result in vehement objections on the part of the government); that since the value of the pipeline will remain with FGP Corporation, there will not be any additional capital cost recovery on the part of SPEX; that in the books of FGP Corporation, the pipeline cost will be removed from "Property Plant and Equipment" item and will be reclassified to the "Other Assets" item; that it will be subject only to amortization for financial accounting purposes but not for tax purposes; that such treatment will result in a permanent reconciling item between financial income and taxable income, since no deductions will be claimed by FGP Corporation from the amortization; that the pipeline cost will be removed from the "Property Plant and Equipment" item as a consequence of FGP Corporation's parting of` ownership and risk over the pipeline; and that since FGP Corporation paid for the capital costs of building the pipeline, it will be charging its customers, Manila Electric Company (MERALCO), a Pipeline Capital Cost Recovery Charge as part of its billings for the sale of electricity throughout the life of its contract with MERALCO. HSCAIT Based on the foregoing representations, you now request for a ruling that the sale or transfer by FGP Corporation of its gas pipeline to SPEX is not subject to donor's tax, capital gains tax, corporate income tax and to value-added tax but only to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. In reply thereto, please be informed that the term "donation" is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it and pursuant to Section 98 of the Tax Code of 1997, a gift tax computed as provided in Section 99 of the said Code shall be levied, assessed, collected and paid upon the transfer, whether direct or indirect, in trust or otherwise, by any person, resident or non-resident of the property by gift. A donor's tax shall be imposed whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. In the instant case, considering that the transfer of the gas pipeline by FGP Corporation to SPEX is business consideration, i.e., to transfer all risks ownership to SPEX as required by FGP Corporation's lenders and to obligate SPEX to use the gas pipelines to deliver the gas to FGP Corporation, the transfer cannot be deemed as a transfer for less than adequate and full consideration. Thus, the transfer

is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997, since there is a clear absence of donative intent. On the other hand, Section 27(D)(5) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher, of such lands and/or buildings. CIDaTc Inasmuch as the gas pipeline is neither land nor building and is deemed not a capital asset of FGP Corporation, the intended transfer thereof is not subject to capital gains tax imposed under Section 27(D)(5) of the Tax Code. Neither is the transfer of the gas pipeline subject to ordinary corporate income tax imposed under Section 27(A) of the Tax Code of 1997. The transfer of the gas pipeline intended merely to transfer risk of ownership did not generate any income subject to income tax. The asset will remain in FGP Corporation's books albeit under "other assets" and not subject to depreciation. SPEX will not take up the asset in its books albeit by agreement it will assume all risks of ownership. As explained during the meeting in August 2003, the construction by FGP Corporation of the gas pipeline and transfer thereof to SPEX was the only compromise solution found to satisfy the Lender's requirements that the gas be delivered at FGP Corporation's plant site with SPEX assuming all risks of delivery and SPEX's willingness to construct the pipeline offshore but which would be so expensive and result in more expensive electricity contrary to the use in pursuit of the Malampaya project. There is no value-added tax as the transfer is not in the ordinary course of business and the property is not held primarily for sale to customers or for lease in the ordinary course of business. (Section 106, Tax Code, RMC No. 3-96, BIR Ruling Nos. 063-97 and 027-00) CDHacE As to the documentary stamp tax, Section 196 of the Tax Code of 1997 provides that on all conveyances, deeds, instruments, or writings, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the said Code, whichever is higher. The Supreme Court held in the case of Meralco Securities Industrial Corporation vs. Central Board of Assessment Appeals, et al., L-46245, May 31, 1982; 5 SCD 214, that a gas pipeline system being a construction adhering to the soil is classified as real property. In support of its ruling, (i)t cited Article 415(1) and (3) of the Civil Code of the Philippines which provides that real property may consist of constructions of all kinds adhered to the soil and everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. Accordingly, the conveyance of the gas pipeline shall be subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. AaIDCS

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, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue

November 21, 2005 BIR RULING [DA-475-05] Corporate Reorganization DA-209-05; DA-567-04; DA-642-04 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention : Atty. Wilfredo U. Villanueva Principal, Tax Services Gentlemen : This refers to your letter dated September 16, 2005 requesting on behalf of your clients, BMS Pharmaceuticals Asia holdings B.V. ("BMS Asia BV"), Bristol-Myers Squibb Luxembourg International S.C.A. ("BMSLUX") and Bristol-Myers Squibb Company ("BMSC"), confirmation of your opinion that the transfer by BMSLUX and BMSC (collectively referred to herein as the Transferors) of their shares of stock in Bristol-Myers Squibb (Philippines), Inc. ("BMS Phils" or the "Company") to BMS Asia BV (also referred to herein as the Transferee) pursuant to a legitimate worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, is not subject to capital gains tax, donor's tax, and documentary stamp tax. CTDacA It is represented that BMS Phils, with principal office at 2309 Don Chino Roces Avenue Extension, Makati City, is a domestic corporation primarily engaged in the business of manufacturing, sale and distribution of nutritional, pediatric and pharmaceutical products; that the Company has an authorized capital stock of Four hundred million pesos (P400,000,000) divided into Four million (4,000,000) shares at P100 par value; that as of December 31, 2004, BMS Phils has 1,397,500 issued and outstanding shares of stock; that BMSLUX is a corporation duly organized and existing under the laws of Luxembourg, with principal office at 2, Rue J. Hackin, L1746 Luxembourg, Grand Duchy of Luxembourg; that it is an indirectly wholly owned subsidiary of BMSC; that BMSC, on the other hand, is a corporation duly organized and existing under and by virtue of the laws of the United States of America, with principal office at 345 Park Avenue, New York, New York 10154, U.S.A.; that BMS Asia BV is a corporation duly organized and existing under the laws of the Netherlands, with principal office at Vijzelmolenlaan 9, 3447 GX Woerden, the Netherlands; that it is primarily engaged in the acquisition and disposition of participations or interests in companies as well as the collaboration and management of such companies; that it is a wholly owned subsidiary of BristolMyers Squibb International Holdings Ireland Limited ("Ireland Holdco"), which in

turn is a wholly owned subsidiary of BMSLUX; that since December 17, 2002, BMSLUX has held the beneficial ownership of 1,397,500 shares representing the entire capital stock of BMS Phils; that presently, BMSLUX is recorded in the Company's books as being the registered owner of 1,347,376 shares representing 96.5% of the outstanding capital stock, while BMSC is the registered owner of 50,119 shares (holding the same in trust for BMSLUX) representing 3.5% of the outstanding capital stock of BMS Phils; that five (5) shares are registered in the names of 5 individual nominee shareholders; that BMS Asia BV is 100% owned by Ireland Holdco, which in turn is 100% owned by BMSLUX; that as part of the worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, BMSLUX, as registered owner of 1,347,376 BMS Phils shares, and beneficial owner of the 1,397,500 BMS Phils shares, transferred said shares to BMS Asia BV; that simultaneously, BMSC, in its capacity as holder in trust for BMSLUX, likewise transferred the 50,119 BMS Phils shares to BMS Asia BV; that the said transfers were made pursuant to a Deed of Assignment that the parties executed on December 31, 2004; that BMSLUX, BMSC and BMS Asia BV subsequently executed an 'Amended and Restated Contribution Agreement' on August 30, 2005, amending the December 31, 2004 Deed of Assignment whereby BMSLUX and BMSC transferred and contributed to BMS Asia BV their respective registered shareholdings in BMS Phils without consideration; that such contribution shall instead be accounted for as share premium on the BMS Asia BV shares for Dutch purposes; that the 'Amended and Restated Contribution Agreement' merely amends the agreement of the parties in the earlier Deed of Assignment, and that the said amended agreement shall be considered effective as of December 31, 2004; that to illustrate the foregoing, you submitted a chart of the group structure showing the respective holdings of BMSLUX, BMS Asia BV and BMS Phils before and after the execution of the December 31, 2004 Deed of Assignment. In reply, please be informed as follows: 1. The transfer by BMSLUX and BMSC of their BMS Phils shares to BMS Asia BV pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to capital gains tax. HCITcA In numerous rulings issued by this Office, we ruled that the transfer of shares of stock in a Philippine company by a non-resident foreign corporation to another nonresident foreign corporation belonging to the same group of companies, said transfer being made pursuant to a legitimate worldwide corporate reorganization, is exempt from capital gains tax since there is no effective transfer of beneficial ownership of the shares in the Philippine company. There being no transfer of beneficial ownership, no gain will be realized by both the transferor and the transferee from the transfer of the shares (BIR Ruling Nos. DA-209-05 dated April 27, 2005; DA-64204 dated December 17, 2004; DA-500-03 dated December 11, 2003; DA-144-03 dated May 5, 2003; DA-130-03 dated April 25, 2003; 347-87 dated November 5, 1987; BIR Ruling No. 161-83 dated September 14, 1983.) Based on the foregoing, this Office confirms your opinion that the transfer of the BMS Phils shares by BMSLUX and BMSC to BMS Asia BV, pursuant to a worldwide corporate reorganization of the Bristol-Myers Squibb Group of Companies, is not subject to capital gains tax as (1) there is no effective transfer of

beneficial ownership of the BMS Phils shares since Transferors and Transferee all belong to the Bristol-Myers Squibb Group of Companies and (2) the transfer is a mere re-alignment of stockholdings effectively consolidating beneficial and legal ownership of the BMS Phils shares. The transfers consolidated both the beneficial and legal ownership of 100% of the outstanding capital stock of BMS Phils into BMS Asia BV. As a result of such transfer, BMS Asia BV will now directly own two (2) BMS companies in the region, namely, BMS Phils and BMS Taiwan. Since there is no transfer of beneficial ownership, no gain will be realized by BMSLUX, BMSC and BMS Asia BV for income tax purpose. 2. The transfer by BMSLUX and BMSC of their BMS Phils shares to BMS Asia BV pursuant to a legitimate worldwide corporate reorganization and without consideration is not subject to donor's tax. This Office has consistently ruled that the transfer of property, without consideration, and primarily made for business considerations is not subject to donor's tax under Section 98 of the Tax Code because under such circumstances, no donative intent can be attributed to the transferor. (BIR Ruling Nos. DA-174-98 dated April 30, 1998; DA-028-05 dated January 24, 2005; and DA-136-05 dated April 7, 2005) While the transfer of the BMS Phils shares was made without consideration, the same is not subject to donor's tax in the absence of donative intent under the above circumstances. It has been consistently held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. (BIR Ruling No. DA-567-04 dated November 9, 2004; DA-338-03 dated October 7, 2003; DA588-99 dated October 07, 1999; DA-403-99 dated July 13, 1999; DA-550-98 dated December 04, 1998; Perez vs. Commissioner of Internal Revenue, CTA Case No. 1707, February 10, 1969) The transfer of the BMS Phils shares was made primarily for business considerations, i.e.; in connection with a worldwide corporate reorganization and to consolidate beneficial and legal ownership into the transferee. Thus, while the transfer was made without consideration, the same is not subject to donor's tax since there is no donative intent that can be attributed to the transferors. AHECcT Furthermore, both the Transferors and the Transferee are all subsidiaries and part of the Bristol-Myers Squibb Group of Companies and there is no transfer of beneficial ownership of the BMS Phils shares. The BIR has also ruled that there can be no donative intent on the part of the transferor in a transfer of properties to the memberbeneficiaries, considering that a person or entity cannot donate properties the ownership of which belongs to themselves (BIR Ruling No. DA-318-99 dated May 21, 1999). Thus, the transfer of BMS Phils shares by BMSLUX and BMSC to BMS Asia BV, without consideration and in connection with a global corporate restructuring, is not likewise subject to donor's tax. 3. The transfer by BMSLUX, BMSC and the five nominee stockholders of their BMS Phils shares to BMS Asia BV is subject to DST. The transfer by BMSLUX, BMSC and the five nominee stockholders of the BMS Phils shares to BMS Asia BV is subject to DST. (BIR Ruling No. DA-209-2005 dated April 27, 2005) Furthermore, under Section 4 of Revenue Regulations No. 132004, implementing Section 176 of the Tax Code of 1997, as amended, all transfer of

shares of stocks of a domestic corporation are subject to the DST upon execution of the deed transferring ownership or rights thereto, or upon delivery, assignment or indorsement of such shares in favor of another. No transfer of shares of stock shall be recorded unless DST thereon has been duly paid for in accordance with Section 201 of the same Tax Code. This ruling effectively revokes BIR Ruling No. 347-87 dated November 5, 1987, DA-144-03 dated May 5, 2003, and the latest Ruling No. DA-642-04 dated December 17, 2004, and other similar rulings in relation to the DST on the transfer of shares of stock is concerned. aSTECA 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 the ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC, Commissioner of Internal Revenue

June 16, 2005 BIR RULING [DA-258-05] 98 DA387-03 Ms. Fides S.C. Asensio No. 1 Meralco Line Narra Street, Monte Vista Subdivision Barangka, Marikina City Madam: This refers to your letter dated September 6, 2004 stating that the late Manuel D. Asensio died intestate on December 21, 2001, survived by his wife, Fides S.C. Asensio, and legitimate children namely Dennis S.C. Asensio and Manuel S.C. Asensio; that at the time of his death he left, together with his wife, several real properties, more particularly described as follows: TCT/CCT No. Area (sq. m.) Registry of Deeds 137811 727 sq. m. Marikina City 30494 25.32 sq. m. Makati City 30499 12.50 sq. m. Makati City 69449 48.90 sq. m. Makati City 69450 12.50 sq. m. Makati City 74197 12.50 sq. m. Makati City that a Partition Agreement with Waiver will be executed by the above-named heirs so that the existing community of ownership over the above-mentioned properties will be terminated and the respective shares and participation of the heirs determined and adjudicated; that however, Fides S.C. Asensio, as the surviving spouse, will waive her rights over the said properties in favor of her two (2) sons; and that pursuant to said Agreement, the parties will mutually and voluntarily agree to partition and adjudicate to themselves the said properties in equal shares. aHcACI In connection therewith, you now request an opinion as to whether or not the renunciation and waiver of one of the heirs, Fides S.C. Asensio, of her share in the

inheritance in favor of the other heirs is subject to donor's tax imposed under Section 98 of the Tax Code of 1997. In reply thereto, please be informed that as a rule, when a person renounces/repudiates his part of the inheritance, the right of accretion takes place and the same is added or incorporated to that of his co-heirs, co-devisees or co-legatees. The share of the denouncer shall accrue to his co-heirs in the same proportion that they inherit pursuant to Articles 1018 and 1019 of the New Civil Code of the Philippines. In the instant case, when Fides S.C. Asensio waives her share in the inheritance in favor of her two (2) children, accretion will effectively take place in the latters' favor and the renounced share will be added or incorporated to their share. Undoubtedly, when the surviving spouse renounces her share in the inheritance, she did not donate the property which had never become hers. Such being the case, the renunciation is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. (BIR Ruling No. DA38703 dated October 28, 2003) CDHacE 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. AHcaDC Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group

September 19, 2006 BIR RULING [DA-561-06] DA-093-2004 dtd 3/1/04 Atty. Jaime M. Maza Carnation St., St. Dominic 5 Banlat, Tandang Sora, Quezon City Sir: This refers to your undated letter for and in behalf of your client, the Estate of Florencio Elio, as represented by Arnaldo M. Elio inquiring on the correct basis of the valuation of the properties inasmuch as there was no approved zonal valuation at the time of the death of the decedent and on the effect of the sale or relinquishment of the wife's conjugal share of the properties and likewise her 1/4 share in favor of her four (4) children. ADECcI It is represented that the late FLORENCIO ELIO, of Patnongon, Antique died on October 8, 1953, leaving properties as certified by the Provincial Assessor to his wife and four (4) children; that a certification of the Revenue District Officer (RDO) issued on October 26, 1971 stated that the taxes thereon had been paid under OR. No. B-2194685 on February 13, 1954; that it is your opinion that the reassessment if any at this time can no longer be made as more than ten (10) years had elapsed therefrom, even assuming that there is fraud which the RDO did not find any; that on January 2, 1986, the widow, Maria M. Elio died; that the estate tax return was filed and the tax due thereon paid on July 22, 1987 under Confirmation Receipt No. B-

120506405 in the amount of P1,007.68; that there is no finding of fraud so the reassessment if any at this time is more than three (3) years, therefore, barred by prescription; and that the heirs, as represented by Mr. Arnaldo M. Elio, are requesting that a clearance be issued for the transfer of the title of the properties to them, as the legal heirs of their late parents. In reply, please be informed that inasmuch as the Chief, Asset Valuation Division, Bureau of Internal Revenue, had issued a Certification to the effect that there is no approved zonal valuation of real properties in Patnongon, Antique as of January 2, 1986, and that the initial valuation took effect only on June 29, 1994, the basis of the valuation of the properties for estate tax purposes then shall be the assessed value or the market value of the properties as indicated in the tax declaration, whichever is higher, since the decedents died on October 8, 1953 and January 2, 1986, respectively, prior to the effectivity of the approved zonal valuation of properties in Patnongon, Antique. cda As to the second issue, the effects of the sale or relinquishment of the wife's conjugal share and her share in the estate of her late husband in favor of their children, are as follows: When a person renounces/repudiates his part of the inheritance, the right of accretion takes place and the same is added or incorporated to that of his co-heirs, co-devisees or co-legatees. The share of the renouncer shall accrue to his co-heirs in the same proportion that they inherit pursuant to Articles 1018 and 1019 of the New Civil Code of the Philippines. In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion. (Arts. 1018, 977, 969, New Civil Code) In the instant case, when the wife waived her share in the inheritance in favor of her children, accretion had effectively taken place in the latter's favor and the renounced shares were added or incorporated to the share of her children. Undoubtedly, when the wife renounced her share in the inheritance, she did not donate the property which had never become hers. Such being the case, the renunciation is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. Moreover, the inheritance renounced by the wife/mother is an additional inheritance to her children. Consequently, the corresponding estate tax computed in accordance with the schedule provided for under Section 84 of the same Tax Code shall be imposed upon transfer of the net estate to her children (BIR Ruling DA 251-99 dated April 23, 1999) DSEaHT However, if the wife sells her conjugal share in the properties and her share in the estate in favor of her children, such transaction is subject to the capital gains tax under Section 24 (D)(1) of the Tax Code of 1997 and to the documentary stamp tax on the transfer of the property under Section 176 of the same Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours,

(SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

February 13, 2008 BIR RULING [DA-089-08] DA-105-99; DA-251-99 Ms. Margarita D. Generoso No. 8875 Sampaloc Avenue Makati City Madam: This refers to your letter dated September 17, 2007, which was forwarded to this Office by Revenue Region No. 8 (Makati City) last 13 November 2007, requesting for exemption from the payment of donor's tax. IAaCST It is represented that you are the surviving spouse of the late Herculano B. Generoso who died intestate on October 8, 1992; that he is also survived by his three (3) children; that on February 4, 1996, you and your children executed an "Extra Judicial Settlement of the Estate of the Late Herculano B. Generoso with Self Adjudication"; that a provision in the aforesaid document states: "That, we, the heirs, namely: MARIA LOURDES LEAH D. GENEROSO, RACHEL IRENE D. GENEROSO, AND JUAN MANUEL D. GENEROSO, the legitimate children of the late HERCULANO B. GENEROSO, hereby WAIVE ANY AND ALL OUR INTEREST ON THE ESTATE OF HERCULANO B. GENEROSO, in favor of our mother, MARGARITA D. GENEROSO. . . ." that the estate tax was paid on December 2, 2002; that the Certificate Authorizing Registration was issued on December 10, 2003 for two (2) real properties covered by TCT No. S-110086 (101027) and OCT No. P-27628 belonging to the estate of Herculano D. Generoso; that when these properties were being processed for transfer, the Register of Deeds of Batangas declared that the donor's tax should be paid. IaSAHC It is your opinion that the waiver made by your children in your favor of their proportionate share in the aforementioned properties is not subject to donor's tax. In reply, please be informed that as a rule, when a person renounces/repudiates his part of the inheritance, the right of accretion takes place and the same is added or incorporated to that of his co-heirs, co-devisees or co-legatees. The share of the renouncing heir shall accrue to his co-heirs in the same proportion that they inherit pursuant to Article 1018 and 1019 of the New Civil Code of the Philippines. In legal succession, accretion takes place in case of repudiation among heirs of the same degree. This is so because there is no right of representation. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is always right of accretion among them, unlike in testamentary succession where there may or may not be a right of accretion. (Arts 1018, 977, 969, New Civil Cede). THCSAE In the instant case, when the three (3) legitimate children, namely: Maria Lourdes Leah D. Generoso, Rachel Irene D. Generoso, and Juan Manuel D. Generoso, simultaneously waived their share in the inheritance, accretion effectively took place

in their mother's favor as their co-heir and the renounced shares were added or incorporated to her share. Hence, the waiver by Maria Lourdes Leah D. Generoso, Rachel Irene D. Generoso, and Juan Manuel D. Generoso, of their respective shares in the above mentioned estate in favor of their mother, Margarita D. Generoso, is not subject to donor's tax as provided under Section 98 of the Tax Code of 1997. This is so because in legal succession accretion takes place in case of repudiation among heirs of the same degree. Undoubtedly, when the three (3) legitimate children renounced their share in the inheritance they did not donate the property/share to their mother, since the said property/share has never become their own. (BIR Ruling No. DA-105-99 dated July 13, 1999, DA-251-99 dated April 23, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. DTEIaC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

June 5, 2006 BIR RULING [DA-346-06] DA407-05 V.C. Mamalateo & Associates Unit 6C, 20 Lansbergh Place 170 T. Morato Avenue Quezon City Attention : Atty. Vic C. Mamalateo Managing Partner Gentlemen : This refers to your letter dated April 25, 2006 stating that your client, United Coconut Planters Bank (UCPB), is a universal bank registered with the Securities and Exchange Commission (SEC); that on various prior dates, Uniwide Sales and Warehouse Club, Inc. (USWCI). Uniwide Sales, Inc. (USI), and Uniwide Sales and Realty and Resources Corporation (USRRC) [collectively referred to as UNIWIDE] obtained various loans from the UCPB, using as collaterals certain real properties; that on December 29, 1999, UNIWIDE and UCPB entered into a Memorandum of Agreement (MOA): that in the said MOA, it is stated that "UNIWIDE has outstanding obligations due in favor of the BANK, in the aggregate amount of P1,043,963,162.13, inclusive of all interest, charges and fees"; that UNIWIDE has offered to assign, transfer and convey to UCPB all the rights to, title and interest of UNIWIDE in certain real properties located in Naic, Cavite, Baclaran, and Caloocan, registered in the name of and owned by UNIWIDE, to satisfy in full and settle the obligation, and UCPB has accepted the offer, subject to certain terms and conditions;

that in consideration for the assignment, transfer and conveyance of the property in favor of UCPB, all outstanding obligations of UNIWIDE as of date shall be deemed fully paid and extinguished; that the MOA further stated that "all friction costs related to the dacion and creation of the special purpose corporations shall be shouldered by UNIWIDE"; that however, since UNIWIDE was cash-strapped at the time of the dacion, UCPB agreed to pay for all expenses and UNIWIDE will reimburse UCPB through the dacion of additional Naic lots; that on January 10, 2001, UNIWIDE and UCPB signed an Amendatory Agreement whereby the assignment, transfer and conveyance of certain properties shall be made through the establishment of special purpose corporations; that in this connection, two (2) special purpose corporations (SPC) have been organized, to wit: DaTICE I. Autumn Hills Realty Corporation (AHRC), which owns the Baclaran, Paraaque property, was organized on August 14, 2001 by five individual stockholders and United Sales Realty and Resources Corporation (USRRC). USRRC owns 99.9% of the subscribed capital stock, or 373,895 shares with par value of P100 per share, by paying P37,389,500 (amount subscribed) and P414,406,523.25 (premium), or a total amount of P451,796,923.25; and 2. Unice Realty Corporation (URC), which owns the various Naic, Cavite lots, was organized on January 19, 2001 by five individual stockholders and USRRC. USRRC owns 99.9% of the subscribed capital stock, or 746,832 shares with par value of P100 per share, by paying paid-up capital of P74,682,700 and premium of P800,023,487.21, or a total amount of P874,706,187.21. 2006cdasia that in compliance with existing issuances, USRRC, a corporation within the UNIWIDE group that owns the real properties, secured the necessary rulings from the BIR, confirming that the exchange of said real properties by USRRC for shares of stock of AHRC and URC are exempt from income tax and capital gains tax, VAT and donor's tax in accordance with Section 40(C)(2) of the Tax Code of 1997; that implementing the MOA, USRRC and AHRC executed a Deed of Absolute Assignment, assigning the Baclaran, Paraaque property, on August 14, 2001, while USRRC and URC executed another Deed of Absolute Assignment, assigning the Naic, Cavite properties, on October 26, 2000 and June 25, 2001; that the corresponding Certificates Authorizing Registrations for the above-described real properties were issued by the appropriate Revenue District Officers on August 24, 2001 and December 3, 2001, respectively; that on April 8, 2005, to settle the outstanding obligations in the total amount of P1,043,963,162.13, USRRC executed three (3) Deeds of Assignment covering the following shares of stocks: Name of Company Value AHRC P314,549,780.12 URC 608,957,008.64 HVDC 120,426,373.42 that on April 12, 2005, UCPB executed a MOA with Odyssey Capital Ventures (SPV-AMC), Inc., a special purpose vehicle corporation, whereby the AHRC shares would be conveyed to the latter, for a valuable consideration, subject to certain terms and conditions, and SPV-AMC would thereafter convey such shares to Cobankiat Hardware, Inc., for valuable consideration, subject also to certain terms and conditions; that under Republic Act (R.A.) No. 9182, otherwise known as the

"Special Purpose Vehicle Law of 2002'', as implemented by Revenue Regulations No. 06-04, as amended, the transfer of assets by a debtor-mortgagor in settlement of its liabilities to a bank-mortgagee through dacion en pago within two years from April 12, 2005 as well as the sale of NPA/NPL by a bank to an SPV and by the SPV to a buyer is entitled to tax exemptions, provided that the necessary Certificate of Eligibility is issued by the appropriate regulatory agency, such as the Bangko Sentral ng Pilipinas (BSP) or the Securities and Exchange Commission (SEC); that with the implementation of the SPV Law of 2002, UCPB filed in January 2005 its application with the BSP that UCPB is a qualified financial institution and that the loans of UNIWIDE are recognized as Non-Performing Assets; that on July 4, 2005, BSP approved UCPB's application and issued Certificate of Eligibility (of NonPerforming Assets) on June 23, 2005; that the BSP also recognized the transfer/sale of the identified non-performing assets of UCPB to SPV-AMC as a "true sale" and issued a Certificate of Eligibility (of Non-Performing Assets) on June 26, 2005; that on July 11, 2005, UCPB filed capital gains tax return and documentary stamp tax return, covering the AHRC shares transferred through dacion en pago by UNIWIDE with the Large Taxpayers Audit and Investigation Division I, and claimed exemption from such taxes pursuant to the provisions of R.A. No. 9182; and that on July 26, 2005, UCPB filed capital gains tax return and documentary stamp tax return, covering the URC shares, and claimed exemption from such taxes under R.A. No. 9182. CSIHDA In connection therewith, you now request for opinion as to whether or not 1. UNIWIDE, as seller (through dacion en pago) of unlisted shares of stock of special purpose corporations, is the person liable to pay capital gains tax, if any; 2. The sale or transfer through dacion en pago of unlisted shares of stock of special propose corporations by UNIWIDE to UCPB is exempt from capital gains tax and documentary stamp tax pursuant to R.A. No. 9182; and 3. Donor's tax accrues on the sale of unlisted shares of stock of a domestic corporation classified as capital assets for less than full and adequate consideration." In reply thereto, please be informed that 1. Section 27(D)(2) of the Tax Code of 1997 provides that "xxx xxx xxx "(2) Capital Gains from the Sale of` Shares of Stock Not Traded in the Stock Exchange. A final tax at the rates prescribed below shall be imposed on net capital gains realized during the taxable year from the sale, exchange or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through the stock exchange: "Not over P100,000 5% "Amount in excess of P100,000 10% From the above-cited provisions, it is undisputed that the capital gains tax is imposed upon the seller or transferor of unlisted shares of stock of domestic corporations based on its net capital gains. Since the seller of the unlisted shares in the dacion en pago is UNIWIDE, which is under receivership, it is the person liable to the aforesaid tax, if any, on the transaction. IcSHTA 2. Section 15 of R.A. No. 9182 provides that

"Section 15. Tax Exemption and Fee Privileges. Any existing law to the contrary notwithstanding, the transfer of NPAs from the FI to an SPV, and from an SPV to a third party or dation in payment (dacion en pago) by the borrower or by a third party its favor of an FI or in favor of an SPV shall be exempt from the following taxes: (a) Documentary stamp tax on the above-mentioned transfer of NPAs and dation in payment (dacion en pago) as may be imposed under Title VII of the National Internal Revenue Code or 1997; (b) Capital gains tax imposed on the transfer of lands and/or other assets treated as capital assets as defined under Section 39(A)(1) of the National Internal Revenue Code of 1997; (c) Creditable withholding income taxes imposed on the transfer of land and/or buildings treated as ordinary assets pursuant to Revenue Regulations No. 2-98, as amended; (d) Value-added tax on the transfer of NPAs as may be imposed under Title IV of the National Internal Revenue Code of 1997 or gross receipts tax under Title V of the same Code, whichever is applicable. Corollarily, Section 3, supra, defines the following terms: "xxx xxx xxx "(g) Non-Performing Assets or NPAs consists of the Non-Performing Loans and Real and Other Properties Owned or Acquired by FIs (ROPOA); "(h) Non-Performing Loans or NPLs refers to loans and receivables such as mortgage loans, unsecured loans, consumption loans, trade receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges, and antichresis, whose principal and/or interest have remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred; "(i) ROPOAs refers to real and other properties owned or acquired by an FI in settlement of loans and receivables, including real properties, shares of stocks, and chattels formerly constituting collaterals for secured loan, which have been acquired by way of dation in payment (dacion en pago) or juridical or extra-judicial foreclosure or execution of judgment. Moreover, Section 3 of Revenue Regulations No. 06-04 provides "xxx xxx xxx "(d) Dation in payment (dacion en pago) refers to a payment whereby property, whether real or personal, tangible or intangible, is alienated in favor of the creditor, which could either be an FI or an SPV, in satisfaction of a non-performing loan: Provided, That the term does not include other forms of transfer such as judicial or extra-judicial foreclosure and execution of judgment. "xxx xxx xxx "(g) Non-Performing Loan or NPL refers to loans and receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including, but not limited to, real estate mortgages, pledges, and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of

default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority. DcHaET "(h) ROPOA refers to real and other properties owned or acquired by an FI in settlement of its loans and receivables, including, but not limited to real properties, shares of stock, and chattel formerly constituting collateral for secured loans, by way of dation in payment (dacion en pago), judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002; and to such real and other properties acquired by an FI after June 30, 2002, through the same modes in settlement of a loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority: Provided, That, only for the purpose of this definition, a property is deemed acquired on: (1) The date of notarization of the "Deed of Dacion" in case of dation in payment (dacion en pago); (2) The date of the entry of judgment in case of judicial foreclosure; or (3) The date of notarization of the "Sheriff's Certificate" in case of extrajudicial foreclosure, Provided, further, That this definition does not include real and other properties owned or acquired by an SPV in settlement of its loans and receivables acquired from an FI or otherwise. A careful scrutiny of the above provisions disclosed that the shares of stock of the special purpose corporations are within the contemplation of the said provisions. It is safe to conclude that the dation in payment by UNIWIDE of shares of stock of the special purpose corporations, like AHRC, URC and HVDC, in favor of UCPB in settlement of its outstanding obligations is exempt from the capital gains tax on the net capital gains realized from the sale of shares of stock not traded in the local stock exchange imposed under Section 27(D)(2) of the Tax Code of 1997 and the corresponding documentary stamp tax on the transfer of shares imposed under Section 196, supra. This is fortified in BIR Ruling No. DA407-05-dated October 3, 2005, where this Office ruled that "Such being the case and on the basis of the aforementioned COEs issued by the BSP that the foregoing obligations are NPLs, the dation in payment thereof executed between the Liquidator of the NSC and GIHI (SPV-AMC), and between the Liquidator of NSC and GSII, within the covered period from April 12, 2003 to April 12, 2005 are exempt from the above enumerated taxes. "xxx xxx xxx" 3. Section 100 of the Tax Code of 1997 provides that "Sec. 100. Transfer for Less Than Adequate and Full Consideration. Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year." HTCIcE The rationale of the above-cited provisions in excluding the safe of real property classified as capital asset from donor's tax is that since the capital gains tax is

computed on the higher amount between the fair market value and gross selling price, to impose the donor's tax on the excess of the fair market value over the gross selling price would be tantamount to double taxation on the same amount first, in the form or capital gains tax, and second, in the form of donor's tax. The above principle is likewise true with respect to the sale or transfer of unlisted shares of stock of a domestic corporation that is not a dealer in securities. Revenue Regulations No. 2-82 provides that the gain from the sale shall be the difference between the cost or adjusted basis and the gross selling price. Considering that the net capital gain from the sale of unlisted shares of stock of a domestic corporation is based and computed on gross selling price, which is the fair market value of the shares of stock sold at the time of sale, no donor's tax arising from the sale of unlisted shares of stock for less than adequate consideration provided for in Section 100 of the Tax Code of 1997 should be imposed. In other words, there would be no occasion where there would be a sale or transfer of unlisted shares of stock for less than adequate consideration where the seller is not a dealer in securities. In the instant case, the Deed of Assignment dated April 8, 2005 provides in the first 'WHEREAS Clause' that UNIWIDE has outstanding obligations due to UCPB in the aggregate amount of P1,043,963,162.18; and in the third 'WHEREAS Clause' that the shares of the special purpose corporations owned by UNIWIDE transferred to UCPB have a total issued value of P1,326,502,210.46 (i.e., P451,796,023.25 for AHRC and P874,706,187.21 for URC). Thus, the facts alone are insufficient to conclude that there was a donation made by UNIWIDE in favor of UCPB, on account of the transfer of shares of stock with a total listed value of P1,326,502,210.46 for a valuable consideration only of P1,043,963,162.18. It is highly unusual for a debtor experiencing financial difficulties in paying its maturing loan obligations and incurring substantial yearly operating losses to even make a donation to its creditor-bank. Thus, Revenue Regulations No. 2-82 do not apply to the dation in payment of UNIWIDE and UCPB because of the following: 1. The unlisted shares of stock of AHRC and URC owned by USRRC are capital assets, since USRRC is not a dealer in securities and said shares are held by USRRC for investment purposes. This finds support in Section 39(A)(1) of the Tax Code of 1997, which defines the term "capital assets" to mean property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. 2. The same principle of law applies to sale of real property classified as capital asset and shares of stock of a domestic corporation classified as capital asset. The similarities in the application of the legal principle have been adequately explained above, and this Office sees no legal reason for treating unlisted shares of stock differently from real property, which are both subject to final income taxes

computed on the gross selling price or fair market value, whichever is higher. cIDHSC 3. The figures shown as outstanding obligations of UNIWIDE to UCPB (P1,043,963,162.18) and total issued value of the shares of stock (P1,326,502,210.46 = P451,796,023.25 for AHRC and P874,706,187.12 for URC) are misleading and not accurate, for the following reasons: a. The outstanding loan obligation mentioned in the MOA and Deed of Assignment dated December 29, 1999 is broken down as follows: Principal P995,500,000.00 Interest 30,846,590.29 Bills purchased 17,616,571.89 TOTAL P1,043,963,162.18 On the other hand, the total issued value of the shares of stock as of the date of incorporation in 2001 of the special purpose corporations are: Unice Realty P16,509,400.00 Autumn Hills 874,706,187.21 Hyper Villas 451,796,023.25 TOTAL P1,343,011,610.46 b. The UNIWIDE loan accounts consist of twelve (12) separate loans extended by UCPB at different dates with a total principal amount of P995,500,000.00 as of December 31, 1999. Since these loans have become past due as of December 31, 1999, additional interests in the total amount of P764,287,500.44 have accrued from January 1, 2000 to April 8, 2005, when the Deeds of Assignment were executed by UNIWIDE and UCPB. These additional interests are not, however, recorded in the books of UCPB in accordance with BSP Manual Regulations of Banks issued on December 31, 1996, which prohibits further accrual of interest income in the books of the bank after the loan of a debtor has become past due, although these accrued interests are reflected in the subsidiary ledger account of the bank and continuously monitored for collection purposes. Considering that the total amount of principal, interest and bills purchased as of April 8, 2005 was P1,808,250,662.62 (P1,043,963,162.18 + 764,287,500.44), which amount is higher than the P1,043,963,162.18 outstanding obligation mentioned in the Deeds of Assignment or the total issued value of the shares of stock in the amount of P1,343,011,610.46, it is clear that the correct amount of obligation being settled as of April 8, 2005 by the contracting parties through dacion en pago is greater than the fair market value of the shares of stock assigned by UNIWIDE to UCPB. c. The breakdown of the book value of the shares of stock is as follows: Autumn Hills Realty Corporation P244,893,747 Unice Realty Corporation 225,735,929 TOTAL P470,629,676 Moreover, Section 6(a)(3)(ii) of Revenue Regulations No. 2-82 provides that "Section 6. Determination of Tax Base. In determining the tax base, the following rules shall apply: TCaEIc

"(a) Determination of selling price. The selling price of the shares of stock shall be the fair market value of the shares of stock transferred or exchanged and not the fair market value of the property received in exchange. If the total consideration of the sale or disposition consists partly in cash or money and partly in kind, the selling price shall be the fair market value of the shares disposed. xxx xxx xxx "(ii) In case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value, together with the evidences in support thereof, should be submitted. The following factors are considered relevant in the valuation of shares of stock of closed corporations. xxx xxx xxx "If such lower fair market valuation is not clearly established and documented, the book value of the unlisted shares of stock shall be adopted. If there have been previous sales/exchanges of the unlisted shares of stock, the price at which those shares exchanged hands should be taken/considered as its fair market value." Said regulations clearly provides that "the book value of these unlisted shares of stock shall be prima facie considered as their fair market value, and in case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value, together with the evidences in support thereof, should be submitted. In the case at bar, the book values of the unlisted shares of stock as of June 30, 2005 are computed as follows: I. Autumn Hills Realty Corporation Total liabilities and stockholders' equity P244,995,636 Less: Advances from stockholders 100,000 Stockholders' equity P244,895,636 Breakdown of equity: Capital stock P37,390,000 Additional paid-in capital 414,412,065 Revaluation increment on land (206,906,429) TOTAL P244,895,636 Formula: Stockholders' equity divided by the number of shares issued and outstanding equals the book value per share Thus: Stockholders' Equity P244,895,636 Divided by No. of Shares 373,900 Book value per share P654.98 Multiplied by No. of Shares owned by UNIWIDE 373,895 Book value of shares owned by UNIWIDE P244,893,747 2. Unice Realty Corporation Total liabilities and stockholders' equity P255,738,293 Less: Advances from stockholders Stockholders' equity P255,738,293 Breakdown of equity:

Capital Stock P74,683,200 Additional paid-in capital 800,028,843 Impairment on revaluation of land (648,973,750) TOTAL P255,738,293 Thus: Stockholders' equity P255,738,293 Divided by No. of Shares 746,832 Book value per share P302.26 Multiplied by No. of shares owned by UNIWIDE 746,827 Book value of shares owned by UNIWIDE P255,735,929 On the basis of the figures in the tentative audited financial statements (stockholders' equity section) as of June 30, 2005, it would appear that the fair market value of the shares of stock is P470,629,676 (P244,893,747 + P255,735,929) IDSaTE It should be noted that on October 24, 2005, the same external auditor, Wilfred Oliver L. Dolosa finalized the tentative audited balance sheet of Unice Realty Corporation. This amended balance sheet shows that the stockholders equity as of June 30, 2005 was P225,738,293, after reflecting the impairment of the value of land, based on the appraisal report submitted by Sallsmans Phil., Inc. dated March 29, 2004, in accordance with the applicable 2005 Philippine Accounting Standard approved by the SEC. For purposes of computing the correct amount of capital gains tax payable and remitting in the process prima facie rule laid down by the regulations as discussed above, it is important that what should be determined is the true fair market value of the property being transferred. It is but proper that the correct value of the property be determined for purposes of computing the capital gains tax. In this regard, the international accounting standards adopted for use in the Philippines could be instructive. After recognition of an asset, an item of property whose fair value can be measured reliably shall be carried at a revalued amount. Revaluation shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. The fair value of land and building is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal (International Accounting Standard No. 16 on Property, Plant and Equipment, paragraphs 31 & 32; BIR Ruling No. DA413-04 dated July 30, 2004). If an asset's carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be debited directly to equity under the heading of revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset (International Accounting Standard No. 16 on Property, Plant and Equipment, paragraph 40). Considering that the true fair market values of the shares of stock of the special purpose corporations and their underlying real properties (P470,629,676) are lower than the total amount of outstanding obligations (P923,536.79) as of date of

execution of the Deed of Assignment, there is a loss (rather than a gain) from the sale or transfer of such shares of stock. Accordingly, this will therefore serve as the authority and guide for the Large Taxpayers Service concerned to issue the corresponding Certificate Authorizing Registration (CAR) relating to the shares of stocks of AHRC and URC on the aforementioned transactions. TcHEaI WHEREFORE, in view of the foregoing, this Office holds that since there is no capital gain (but rather a capital loss) from the sale or transfer of the unlisted shares of stock of the special purpose corporations by UNIWIDE in favor of UCPB, the assignment of the unlisted shares of stock is exempt from the following taxes: (a) capital gains tax imposed under Section 27(D)(2); (b) donor's tax imposed under Section 99; and (c) documentary stamp tax imposed under Section 176, all of the Tax Code of 1997 in relation to R.A. No. 9182. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

July 11, 1995 BIR RULING NO. 104-95 50(b) 000-00 104-95 ATTY. RICARDO J.M. RIVERA Rm. 604 ECCOI Building 497 E. Rodriguez Sr. Avenue Quezon City Sir: This refers to your letter dated September 5, 1994 stating that on March 14, 1989, your clients Ms. Generosa A. Latorre and Fr. Luis Esteban Latorre, both of 113 Buri St., Ayala Alabang, Metro Manila, donated to the Porfirio D. Latorre Memorial & Fr. Luis Esteban Latorre Foundation, Inc. (the Foundation) a parcel of land they coowned located in Makati City covered by TCT No. 217379 (S-82523) issued by the Registry of Deeds of the Province of Rizal; that such donation was embodied in deeds of donation executed by the said parties and notarized by Atty. Juan M. Katigbak, Jr.; that thru the said deeds of donation, the ownership of the aforesaid property was transferred to the Foundation without paying any tax for such transfer as the Foundation is tax-exempt; and that recently, however, Ms. Latorre and Mr. Esteban latorre (who has left priesthood) came to need the said property they donated to the Foundation and since it was the agreement between the parties that the donation may be revoked should the donors, "during her/his lifetime, used up her/his remaining properties and money, and she/he needs money for her/his old age, hospitalization, and to maintain her/his standard of living she/he is used to, the DONEE will return or sell the properties and give the money to the DONOR'S",

separate Deeds of Revocation of Donation and Reconveyance of Property both dated September 2, 1994 and notarized by you were executed by the parties. cdti It is noted that in the documents submitted the said donation was perfected on March 14, 1989 while the Agreements of the parties to the effect that should the donors now need the property they donated, the donee will return or sell the property and give the money to the donors, were executed on March 20, 1989; and that in the respective Deeds of Revocation of Donation and Reconveyance of Property executed by the parties on September 2, 1994, the reason for the revocation of the said donation of Mr. Luis Esteban Latorre is that at the time the donation was made the donor was a Roman Catholic priest, but now the donor needs the property he donated because he has left priesthood and is now married civilly to Evelyn Fernandez with whom he has a son by the name of Luis Gener Porfirio Latorre, who was born on January 23, 1992; while the reason for the revocation of the donation of Ms. Generosa Almeda is that she needs now the property she donated for her old age. Based on the foregoing representations and documents submitted, you are now requesting for a ruling that the said reconveyance of title in the names of your clients is exempt from the payment of any tax. In reply, please be informed that Article 757 of the Civil Code of the Philippines provides as follows: "Art. 757. Reversion may be validly established in favor of only the donor for any case and circumstances, but not in favor of other persons unless they are all living at the time of the donation. "Any reversion stipulated by the donor in favor of a third person in violation of what is provided in the preceding paragraph shall be void, but shall not nullify the donation. From the above quoted provisions of Art. 757 of the Civil Code of the Philippines it is clear that stipulation of reversion of donation in favor of the donor for any case and circumstances must be made at the time of the donation or at the perfection of the donation considering that such stipulation is a limitation on the donation. Hence, the execution of the said Agreement between the parties on March 20, 1989 subjecting the said donation to the said limitation after its perfection on March 14, 1989 did not convert the said donation to be subject to such to such a limitation. Accordingly, the reconveyance by the donee of the property donated by Ms. Generosa Almeda in her favor is subject to the 5% creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax code, as amended and to the documentary stamp tax prescribed under Section 196 of the same code based on the zonal value of the said property. However, in the case of Mr. Luis Esteban Latorre, the reconveyance by the donee in his favor of the property he donated is not subject to the creditable withholding tax imposed under Revenue Regulations No. 1-90 and to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended, but is subject only to P10.00 documentary stamp tax imposed under Section 188 of the Tax Code, as amended, in view of Art. 760 of the Civil Code of the Philippines, which reads as follows: prll "Art. 760. Every donation inter vivos, made by a person having no children or descendants, legitimate or legitimated by subsequent marriage, or illegitimate, may

be revoked or reduced as provided in the next article, by the happening of any of these events: "(1) If the donor, after the donation, should have legitimate or legitimated or illegitimate children, even though they be posthumous; "(2) If the child of the donor, whom the latter believed to be dead when he made the donation should turn out to be living; "(3) If the donor should subsequently adopt a minor child." Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue

November 10, 2005 BIR RULING [DA-455-05] Third World Eye Care Society 2453 Commercial Drive, Vancouver BC Canada Attention : Dr. Marina Roma-March President Gentlemen : This refers to your letter dated September 30, 2005 requesting exemption from the value added tax on your donated eye glasses from British Columbia to be used in your medical mission. It is represented that the Third World Eye Care Society (Society) is a registered nonprofit charity that is 100% volunteer group based in British Columbia; that you are a group of medical doctors, eye doctors, opticians and general volunteers from the Society who travel to developing countries to provide free eye care and eye glasses to the poor in the Third World; that the Society has been invited by the Mayor of Tacloban, Leyte to conduct an eye care mission for the poor in the barrios of Tacloban from November 12 to 26, 2005; that the Society will be working with the Rotary Club of San Juanico and the City Hospital of Tacloban; that it has a team of 14 medical, doctors, eye doctors and opticians for this eye care mission; that each member will be responsible for their airfare and accommodations; that all the eyeglasses they will be bringing are used and donated by compassionate British Columbians; that all the eyeglasses and equipment to be used and not given away will be brought back by your team to Canada to be used for their next project to Kenya, Africa; that since the Society is a non-profit organization, it has no funds to pay for duty or tax on your eye glasses and equipment; and that you sent a supplemental letter dated November 7, 2005 stating that the donated eyeglasses have no monetary value, as they will not be sold, resold or exchanged for profit. IDESTH In reply, please be informed that the donations made by the Society to the barrios of Tacloban are exempt from donor's tax in view of Section 101(A)(2) of the Tax Code of 1997, which provides that gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government shall be exempt from tax. (BIR Ruling No. 021-96 dated February 21, 1996)

The importation, however, of the said eye glasses shall be subject to the Value Added Tax pursuant to Section 107(A) of the Tax Code of 1997. However, since based on your supplemental letter the shipment has no monetary value, no valueadded tax can be derived or computed since the tax base is zero. 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 as null and void. cETCID Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

December 15, 2006 BIR RULING [DA-718-06] 34(A)(1); 34(H); RR 2-98 #016-2006 Hydro Electric Development Corporation 214 Obulan, Ambuklao Road, Beckel, La Trinidad, Benguet Attention : Mr. Jose Venancio Batiquin Gentlemen : This refers to your letter dated November 12, 2004 requesting confirmation of your opinion that: EAcCHI 1. The payments made by Hydro Electric Development Corporation (HEDC) denominated as "donation" and "share" under the Memoranda of Agreement (MOA) between HEDC and the Municipalities of Tuba, Sablan and La Trinidad all of Benguet Province are in reality consideration for the use of HEDC of the municipal water resources and other public properties of said municipalities. 2. Considering the nature of said payments HEDC can claim the same as an ordinary and necessary expense under Section 34A(1) of the Tax Code as amended 3. Since the payees are local government units the said expense is not subject to withholding tax. BACKGROUND HEDCOR is engaged in the business of developing potential sites for hydroelectric power in the Province of Benguet. It has been registered as such pursuant to Republic Act No. 7156 otherwise known as "An Act Granting Incentives to MiniHydroelectric Power Developers and For Other Purposes" and its Implementing Rules & Regulations. It is presently registered as a VAT Taxpayer with the Bureau of Internal Revenue under VAT Registration Number 609-000134. HEDC entered into three (3) separate Memoranda of Agreement with the Municipalities of Tuba, Sablan and La Trinidad all of Benguet Province defining the terms and conditions for the construction, operation and/or maintenance of a mini hydro electric plant in suitable sites in the said municipalities

A. With respect to the Municipality of Sablan: Under the terms of the MOA, HEDC agreed to share with the community a part of its income and voluntarily offers to "donate" to the MUNICIPALITY and the Barangays where the plants will be located, the following: TCcDaE a) 2% of its NET SALE (power generated and sold to either BENECO or NPC or both or to other third parties) to the Municipality of Sablan, Benguet Province. (Paragraph 1(a) of the MOA) b) 1% of its NET SALE (power generated and sold to either BENECO or NPC or both or to other third parties) to the specific barangay(s) where the mini-hydro electric plants are located. (Paragraph 1 (b) of the MOA) B. With respect to the Municipality of La Trinidad: Under the terms of the MOA, HEDC agreed to share with the community a part of its income and voluntarily offers to remit to the MUNICIPALITY and the Barangays where the plants will be located, the following: c) 2% of its NET SALE (power generated and sold to either BENECO or NPC or both or to other third parties) to the Municipality of La Trinidad, Benguet Province. (Paragraph 2(a) of the MOA) d) 1% of its NET SALE (power generated and sold to either BENECO or NPC or both or to other third parties) to the specific barangay(s) where the mini-hydro electric plants are located. (Paragraph 2(b) of the MOA. C. With respect to the Municipality of Tuba: Under the terms of the MOA, HEDC agreed to share with the Municipality of Tuba one (1%) of its net share effective November 1997. (paragraph 1 page 2 of MOA). In exchange/consideration of the above-mentioned payments, the three (3) municipalities in each MOA agree to allow use of municipal properties and to do the following services: a) The protection of watersheds b) The ensurance of peace and order c) The ensurance of cooperation of the municipal officials with the management/employees and the plant's staff BIR REPLY The National Internal Revenue Code, as amended, provides: cHESAD "Section 34 "xxx xxx xxx "(H) Charitable and Other Contributions. "(1) In General. Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, or to accredited domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to nongovernment organizations, in accordance with rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, no part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (5%) in the case of a corporation, of the taxpayer's

taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs. "(2) Contributions Deductible in Full. Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full: "(a) Donations to the Government. Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (NEDA), in consultation with appropriate government agencies, including its regional development councils and private philanthropic persons and institutions: Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection; cTCEIS Pursuant to the above-quoted provisions of law, donations to charitable and other institutions are deductible subject to certain qualifications. However, in order to determine whether said contribution may be considered a donation it is necessary to determine first what constitutes donation or gift. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefore. 1 The definition of a donation is found in the Civil Code. Article 725 of said Code defines donation as: ". . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it." Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi. 2 In this particular case, the payments made by HEDC denominated as "donation" and "share" in favor of the Municipalities of Tuba, Sablan and La Trinidad, all of Benguet Province clearly do not qualify as a donation. 3 The MOA which embody the agreement between HEDC and the said municipalities clearly reflect the intention of both parties to regard said payments as consideration by the latter for the use by HEDC of the municipal resource and property. The dependence of said payments on the existence of net sales before payment is made moreover belies the fact that it was the intention of HEDC to do an act of liberality in favor of the municipalities. Moreover, there is no reduction or increase of patrimony to speak of. Ordinary and necessary expense pursuant to the Tax Code, as amended constitute the following: ISDCHA "Section 34 (A) Expenses. (1) Ordinary and necessary trade, business or professional expenses. (a) In general. There shall be allowed as deduction from gross income all ordinary and necessary expenses paid or incurred during the taxable year in carrying

on, or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession." Simply put, to be deductible from gross income, the subject expense must comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. 4 Using the guidelines enunciated above, HEDC's payment for the use of municipal resources and properties is an ordinary and necessary expense since the use of said resources and properties is essential, necessary, and constitutes the primary source of generated electricity for HEDC, hence, said expense or such use was or is being legitimately incurred in carrying on its business. The income payments that HEDC pays as aforementioned to the Municipalities of Tuba, Sablan and La Trinidad all of Benguet Province constitute payment to government instrumentalities which are not subject to the expanded withholding tax under Section 4 of Revenue Regulations No. 12-94 amending Revenue Regulations No. 6-85. 5 It is also not subject to any creditable withholding tax (CWT) under Revenue Regulations No. 2-98, as amended. 6 This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. cdasia Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250). 2. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz vs. Commissioner of Internal Revenue, C.T.A. Case No. 4296. October 7, 1991 3. BIR Ruling No. 016-2006 4. Commissioner of Internal Revenue vs. General Foods (PHILS.), Inc., G.R. No. 143672. April 24, 2003. 5. BIR UN Ruling No. 410-95 dated 11-20-1995 6. BIR Ruling No. 008-05 dated 7-28-2005

July 27, 2005 BIR RULING [DA-329-05] Section 101 (A)(3) S30-056-2001 Atty. Raquel R. Tantoco-Pineda The Asian Mansion I, 109 De La Rosa St., Legaspi Village, Makati City Madam:

This refers to your letter dated April 11, 2005 requesting in behalf of your client, the Sisters of St. Paul of Charters for exemption from the payment of donor's tax relative to the donation in favor of the Sisters of St. Paul of Chartres. DETACa It appears that you write in behalf of the Sisters of St. Paul of Chartres, a non-stock, non-profit corporation duly organized and existing under the laws of the Philippines; that the transfer shall be without monetary consideration and that not more than 30% of the gifts shall be used by such donee for administration purposes. In reply, please be informed that inasmuch as the donee is a religious organization, the aforementioned donation is exempt from the payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, subject to the condition that not more than 30% of said gifts shall be used by the donee for administration purposes. ICAcaH Moreover, the Deed of Donation is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Tax Code. Finally, if the donor is a VAT registered person and the donation is an ordinary asset, the input VAT attributed to the VAT portion of the cost of the donation should be deducted from the accumulated input VAT of the donor. If the donor is not a VAT registered person, the donation is exempt from VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. ScaHDT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

favor of Liceo De San Jacinto Foundation, Inc., a non-stock, nonprofit educational institution with principal office at San Jacinto, Masbate and registered with the Securities and Exchange Commission on March 7, 2003. In reply, please be informed that inasmuch as the donee is an educational institution, the aforementioned donation is exempt from payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the Tax Code, provides that conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the deed of donation is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, as amended, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997 (BIR Ruling No. DA-28-98 dated January 29, 1998). 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. cEATSI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

October 3, 2005 BIR RULING [DA-408-05] Section 101(A)(3) BIR Ruling No. DA-028-98 Atty. Ruben Joel A. Puertollano 9-C Gen. Lim Street Heroes Hills, Brgy. Sta. Cruz Quezon City Sir : This refers to your letter dated September 20, 2005 requesting for an exemption from payment of donor's tax on the transfer of that parcel of land together with all the buildings and improvements found thereon situated in Poblacion, San Jacinto, Masbate. EScAID As represented, on April 15, 2005, Liceo de San Jacinto, Inc., a stock and profit corporation with principal office at San Jacinto, Masbate and whose corporate life expired on March 30, 2003, executed a Deed of Donation over a parcel of land in

December 27, 2005 BIR RULING [DA-523-05] Section 101(A)(3) BIR Ruling No. DA-058-04 Angara Abello Concepcion Regala & Cruz ACCRA Building 122 Gamboa Street Legaspi Village, Makati City Attention : Atty. Ruby Rose J. Yusi Gentlemen : This refers to your letter dated August 22, 2005 requesting on behalf of your client, ING Bank N.V. Manila Branch (ING Bank) for a confirmation of your opinion that ING Bank's initial contribution of PhP1,000,000 to ING Foundation Philippines, Inc. (ING Foundation) is exempt from donor's tax and is fully deductible from the gross income of ING Bank in accordance with Section 101(A)(3) of the Tax Code of 1997. HTASIa As represented, ING Bank is a foreign banking institution duly licensed to establish and operate a branch office in the Philippines. ING Foundation, on the other hand, is a non-stock, non-profit foundation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CN200511218 dated June 30, 2005. It is currently in the process of securing its accreditation with the PCNC. Its primary purpose is "to create, maintain and act as a non-stock, non-profit foundation for the purpose of engaging in charitable activities

including, but not limited to, extending relief and assistance to the poor, distressed and underprivileged sector of the Philippines in whatever manner possible . . . ." It also has the power to grant aid or assistance to other foundations dedicated to the same pursuits. Per its Modus Operandi as filed with the SEC, ING Foundation will focus its operation mainly to provide possible solutions to various societal problems of the Philippines (such as rendering aid to and ameliorating the living conditions of the poor, distressed, and underprivileged; preventing community deterioration; promoting educational, cultural, health-awareness and sports programs) through networking and cooperation with and providing of funds to certain nongovernmental organizations accredited by the Philippine Council for NGO Certification (PCNC). The first project of ING Foundation is a tie-up with Habitat for Humanity Philippines Foundation Inc. for the development of a community in Baseco Compound, Tondo, Manila. DaECST In reply, please be informed that inasmuch as the donee is a charitable organization, the aforementioned donation is exempt from the payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. However, it is the opinion of this Office that for purposes of full deductibility from the taxable business income of your client as donor pursuant to Section 34(H)(2)(C) of the Tax Code of 1997, ING Foundation must first be accredited with the Philippine Council for NGO Certification (PCNC), Inc. which has been duly designated by the Secretary of Finance as the Accrediting Entity pursuant to Memorandum of Agreement dated January 29, 1998 executed by and between the Secretary of Finance and PCNC's Interim Chairman. Section 34(H)(2)(C) of the Tax Code of 1997 provides that donations to an accredited non-government organization (NGO), which means a non-profit domestic corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, cultural, rehabilitation of veterans, social welfare or a combination thereof, no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor depending on the donee's compliance with the level of administrative expense and utilization requirements. Otherwise, it shall be entitled only to the limited deductions as provided for under Section 34(H)(1) of the same Tax Code. Donations, contributions or gifts actually paid or made within the taxable year to accredited NGOs shall be allowed full deductibility on the taxable year it was incurred pursuant to Section 34(H)(2)(C) of the Tax Code of 1997 (BIR Ruling No. DA-124-2004, April 20, 2004 and BIR Ruling No. S30-016-2004 dated May 6, 2004). TIEHDC 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service

March 27, 2006 BIR RULING [DA-157-06] Section 30 BIR Ruling No. 022-00 & S30-011-2001 Visually Impaired's Brotherhood for Excellent Services Inc. H-1268 Valley Fairways Subd., Valleygolfroad Cainta, Rizal Attention: Mr. Dante A. Tiosan President Gentlemen : This refers to your letter dated February 28, 2006 indorsed to this Office by Commissioner Jesus E.G. Martinez requesting on behalf of Visually Impaired's Brotherhood for Excellent Services Inc. (VIBES) for a Certificate of Tax Exemption. DaIAcC As represented, VIBES is a non-stock, non-profit organization registered with the Securities and Exchange Commission under SEC Reg. No. ANO92-002227 dated June 23, 1992. It is also registered with the Department of Social Welfare Development (DSWD). It aims primarily to promote the socio-economic conditions of its blind members and dependents. In pursuit of its goal, VIBES established livelihood projects in the form of massage clinics, which provide gainful and decent employment to trained and skilled blind masseurs. For several years of striving hard to become self-reliant individuals and a self help group, VIBES was able to achieve Multi Awards i.e., Apolinario Mabini Best Employer for Disabled, RCBC Sikap Award Disabled Category, Department of Health Hamis Silver Award for Traditional Medicine, and other recognition. To support the Government's ten-point program, more particularly in poverty alleviation, health consciousness and job creation, VIBES is intensifying its sustainable development programs through strengthening, expansion and replication of its livelihood projects. Although current political and economic crisis, tight competition and highly operational costs badly affect its daily sales, VIBES remains hopeful. CaAcSE INCOME TAX Based on the foregoing, this Office is of the opinion and so holds that VIBES is a corporation organized for charitable and social welfare purposes as contemplated under Section 30(E) and (G) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: provided, however, that interest income derived by it from a depository bank

under the expanded foreign currency deposit system shall be subject to 7-1/2% final withholding tax pursuant to Section 27(D)(1), in relation to Section 57 (A), both of the Tax Code of 1997. Moreover, it is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. It is requested that a copy of this letter of exemption be attached to the annual information return which VIBES will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organization or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has have been granted tax exemptions or tax incentives, and its tax liabilities, if any. cATDIH It should be understood that the said exempt non-government organization shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79(A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57(B) of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended (BIR Ruling No. S30-047-01 dated June 5, 2001). HOWEVER, this ruling is subject to the condition that VIBES shall submit its Articles of Incorporation to include the following provisions: a. that the corporation is non-stock, non-profit; b. that the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; c. that no part of the net income shall inure to the benefit of any of its members; d. that the trustees do not receive any compensation; and e. in case of dissolution, assets of the corporation shall be transferred to similar institution or to the government; By-laws, Annual Information Returns and Financial Statements (balance sheet) for the past three (3) years in compliance with Revenue Memorandum Circular (RMC) No. 14-2001. Otherwise, it shall be given a temporary exemption instead. HEDSCc VAT Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added (VAT) imposed in Section 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock,

non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Accordingly, if VIBES is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-0432004 dated February 4, 2004). Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Revenue from "contributions, membership dues and donations," not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 10% VAT. TDCcAE However, the above exemption from the 10% o VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods (except in the case of foreign donations) shall nevertheless be subject to the 10% VAT pursuant to Section 107(A) of the Tax Code of 1997. Thus, it has been ruled in the case of The Camillian Fathers, Inc. that ". . . if your client imports goods, the said importation shall be subject to VAT. . . ." (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). DONOR'S TAX Republic Act (R.A.) No. 7227, otherwise known as the "Magna Carta for Disabled Persons" is a special law which grants tax incentives to foreign donor/s on donation, bequest, subsidy or financial aid made to government agencies engaged in the rehabilitation of disabled persons and organizations of disabled persons. Sections 41 and 42 of R.A. No. 7227 provides, viz: "SECTION 41. Support From Nongovernment Organizations. Nongovernment organizations or private volunteer organizations dedicated to the purpose of promoting and enhancing the welfare of disabled persons shall, as they, are hereby encouraged, become partners of the Government in the implementation of vocational rehabilitation measures and other related programs and projects. Accordingly, their participation in the implementation of said measures, programs and projects is to be extended all possible support by the Government. SECTION 42. Tax Incentives. a) Any donation, bequest, subsidy or financial aid which may be made to government agencies engaged in the rehabilitation of disabled persons and organizations of disabled persons shall be exempt from the

donor's tax subject to the provisions of Section 94 of the National Internal Revenue Code (NIRC), as amended and shall be allowed as deductions from the donor's gross income for purposes of computing the taxable income subject to the provisions of Section 29(h) of the Code (now Section 34(H) of the Tax Code of 1997). aEHASI b) Donations from foreign countries shall be exempt from taxes and duties on importation subject to the provisions of Section 105 of the Tariff and Customs Code of the Philippines, as amended, Section 103 of the NIRC, as amended (now Section 109) of the Tax Code of 1997), and other relevant laws and international agreements. xxx xxx xxx" Based on the foregoing, foreign donations are exempt from donor's tax under Section 101(A)(3). Moreover, pursuant to Section 109(K) of the Tax Code of 1997 as amended by R.A. No. 9337, transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 529, are exempt from the VAT. Accordingly, foreign donations are also exempt from the VAT on importation imposed under Section 107(A) of the same Code. 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. aASDTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service