March 28, 2012

BIR RULING NO. 214-12

Sec. 40 (C) (2); 00-000

Greenstone Resources Corporation

05896 Nonang Street, Villa Corito Subdivision
Surigao City

Attention: Love D. Manigsaca

Director-Finance and Services

Gentlemen :

This refers to your letter dated June 23, 2010 stating that Greenstone Resources
Corporation (GRC) is a domestic corporation duly registered with the Securities and
Exchange Commission (SEC) under SEC Registration No. 09053 dated April 15, 2003
with TIN 223-913-563-001; that GRC is a mining company and is currently owned 60%
by Surigao Holdings and Investment Corporation (SHIC) and 40% by Red5 Asia,
Incorporated (RED5 Asia); that it is primarily organized —
"To engage in the exploration, utilization and processing of minerals and
other mineral resources; to obtain the appropriate permits and licenses from the
government, and to enter into nancial and technical assistance agreements,
mineral production sharing agreements or such other relevant agreements with
the government or with any person (as may be allowed by law) for the
exploration, development and utilization of mineral resources; to acquire or
convey mineral rights (or any interest thereto); to render exploration, technical,
management and other services to individuals, partnerships, association, and
corporations, engaged in mining; to engage in all mining-related activities,
including, but not limited to, the acquisition, conveyance, storage, marketing,
refining and distribution of minerals and other mineral resources."

that on the other hand, Merrill Crowe Corporation (MCC) is likewise a corporation
organized and existing under the laws of the Philippines with principal o ce address at
20th Floor, G.T. Tower International, Ayala Avenue cor. H.V. dela Costa Street, Makati
City, with TIN 004-657-299-000; that it is currently owned 60% by SHIC and 40% by
RED5 Asia; that it is organized primarily —
"To engage in the survey, exploration, location, development and
commercial operation of mineral claims with full power and authority to do any
and all acts, things, business and activities which are relate, incidental or
conducive directly or indirectly to the attainment of the foregoing as a mining
company." ACIEaH

that to promote and accomplish many e ciencies and economies which will de nitely
serve to reduce both administrative and operating costs in all aspects of the
businesses involved, the respective board of directors of GRC and MCC proposed the
merger of the two (2) companies in accordance with Title IX of the Corporation Code of
the Philippines with GRC as the surviving corporation; that accordingly, and in
pursuance thereof, GRC and MCC executed the corresponding Plan of Merger on June
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 28, 2010; that under the terms and conditions of the Merger and upon the effective
date thereof, GRC, shall be the surviving corporation in the Merger and its identity,
existence, purposes, rights, privileges, immunities and franchises shall continue
unaffected and unimpaired by the Merger, and its Articles of Incorporation and By-Laws
shall, upon the effective date, continue in full force and effect; that upon the effective
date, MCC shall convey, assign and transfer to GRC all its assets and liabilities existing
as of May 31, 2010 and such assets and liabilities that may exist, now or in the future,
and until the effective date of the merger; that GRC shares shall be issued as a
consequence of the merger of the Constituent Corporations; that GRC shall issue
94,538 shares with par value of P9,453,800.00 in favour of MCC shareholders, RED5
Asia and SHIC, to be paid out of the net assets of MCC as of May 31, 2010; and that the
excess of the net assets shall be treated as additional paid-in capital in the book of
GRC, as the surviving corporation.
Based on the foregoing representations, you now request for a ruling that the
transfer of all of the assets and liabilities of MCC to GRC pursuant to a Plan of Merger
quali es for non-recognition of gain or loss for income tax purposes under Section 40
(C) (2) of the Tax Code of 1997; and that such transaction is not subject to value-added
tax (VAT) in accordance with Section 4.106-8 (b) (3) of Revenue Regulations No. 16-
2005, as amended.
In reply thereto, please be informed as follows:
The foregoing merger of GRC and MCC is a merger within the contemplation of
Section 40 (C) (2) (a) in relation to 40 (C) (6) (b) of the Tax Code because GRC shall
acquire/assume all the assets and liabilities of MCC, the same being for a bona de
business purpose and not for the purpose of escaping the burden of taxation;
Accordingly, the substituted basis of the properties transferred by MCC to GRC shall be as
follows:
Assets and Liabilities of Merrill Crowe Corporation as of December 31, 2009
Nature of Properties Substituted Basis Liabilities
(as of May 31,
2010)

Cash and Cash P614,776.29 Accrued Expenses P38,333.30

equivalents Payable
Available for sale 28,479,161.73 Taxes Payable 2,000.00
securities
Prepayments 10,054.07
Receivables 7,496,250.00
Other Assets 27,000,000.00
––––––––––––– –––––––––
Total P63,600,242.09 P40,333.30
============ ========
The basis of the shares of stock to be received by the transferor (MCC) upon the
exchange shall be the same as the basis of the properties, stocks or securities
exchanged, decreased by (1) the money received, and (2) the fair market value of the
other property received and increased by (a) the amount treated as dividend of the
shareholders and (b) the amount of any gain that was recognized on the exchange.
(Sec. 40 (C) (5) (a) of the Tax Code of 1997)
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 The basis of the property transferred in the hands of the transferee (GRC) shall
be the same as it would be in the hands of the transferor (MCC) increased by the
amount of the gain recognized to the transferor (MCC) on the transfer. (Sec. 40 (C) (5)
(b), supra)
Finally, if the amount of the liabilities assumed plus the amount of the liabilities to
which the property is subject exceed the total of the adjusted basis of the property
transferred pursuant to such exchange, then such excess shall be considered as a gain
from the sale or exchange of a capital asset or of property which is not a capital asset,
as the case may be. (Sec. 40 (C) (4) (b), supra)
A. Substituted Basis of Shares Received
1. Allocation of Shares
Allocated Shares
Cash 614,776.29
––––––––––– X 94,538 914
63,600,242.09
Other Php62,985,465.80
Assets ––––––––––––––– X 94,538 93,624
63,600,242.09

2. Allocation of Shares of Other Assets

Available 28,479,161.73
For sale –––––––––––– x 93,624 42,333
Securities 62,985,465.80
Pre- 10,054.07
Payments ––––––––––– x 93,624 15
62,985,465.80
Receivables 7,496,250.00
––––––––––– x 93,624 11,143
62,985,465.80
Other 27,000,000.00
Assets –––––––––––– x 93,624 40,134
62,985,465.80

3. Allocation of Assumed Liabilities

Available 28,479,161.73
for Sale –––––––––––– x 40,333.30 18,236.88
Securities 62,985,465.80
Prepayments 10,054.07
––––––––––– x 40,333.30 6.44
62,985,465.80
Receivables 7,496,250.00
–––––––––––– x 40,333.30 4,800.29
62,985,465.80
Other 27,000,000.00
Assets –––––––––––– x 40,333.30 17,289.69
62,985,465.80

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 4. Substituted Basis

Cash and Cash

Equivalent 614,776.29 - = 614,776.29
Available
For Sale
Securities 28,479,161.73 - 18,236.88 = 28,460,924.85
Pre-payments 10,054.07 - 6.44 = 10,047.63
Receivables 7,496,250.00 - 4,800.29 = 7,491,449.71
Other Assets 27,000,000.00 - 17,289.69 = 26,982,710.31
The Substituted Basis for the following transferee shares are:
No. of Shares Substituted Basis

Cash and Cash Equivalent 914 P614,776.29

Available for Sale 42,333 28,460,924.85
Securities
Prepayments 15 10,048.07
Receivables 11,143 7,491,449.71
Other Assets 40,134 26,982,710.31
–––––––––––––
Total P63,559,909.23
============
For value-added tax ("VAT") purposes, the transfer of goods or properties of
MCC to GRC, which are originally intended for sale or for use in the course of business
existing as of the effective date of merger will not be subject to any output tax,
pursuant to Section 4.106-8 (b) (3) of Revenue Regulations No. 16-2005, as amended
by Revenue Regulations No. 4-2007, as further amended by Revenue Regulations No.
10-2011. Thus, any unused input tax as of the effective date of merger will be absorbed
by GRC, as the surviving corporation pursuant to Section 4.106-8 (b) (3) of Revenue
Regulations No. 16-2005, as amended. aHATDI

No Documentary Stamp Tax ("DST") is due on the transfer made pursuant to the
Plan of Merger under Section 199 (m) of the Tax Code, as amended by Republic Act No.
9243, in relation of Section 40 (C) (2) of the Tax Code, as amended. Thus, the transfer
of properties by MCC in favor of GRC is exempt from DST.
But, DST at the rate of P1.00 on each P200 par value, or fractional part thereof,
shall be imposed on the original issuance of shares by GRC to the stockholders of MCC
as a consequence of the merger as provided under Section 174 of the Tax Code, as
amended.
It is to be emphasized, however, that the net operating loss carry-over (NOLCO)
under Section 34 (D) (3) of the Tax Code of 1997, as implemented by Revenue
Regulations No. 14-2001, of the absorbed corporation, MCC, is not one of the assets of
the latter that can be transferred and absorbed by the surviving corporation, GRC, as
this privilege or deduction can be availed of merely by the absorbed corporation.
Accordingly, the tax-free merger between MCC and GRC does not cover the NOLCO of
the former that can be transferred and absorbed by the latter corporation.
However, in order that the above-described reorganization can be considered as
merger under Section 40 (C) (2) and (6) (b) of the Tax Code of 1997, the parties to the
merger should comply with the following requirements set forth under Revenue
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 Regulations No. 18-2001:
A. The plan of reorganization should be adopted by each of the
corporations, parties thereto, the adoption being shown by the acts of
its duly constituted responsible o cers and appearing upon the
o cial records of the corporation. Each corporation, which is a party
to the reorganization, shall le, as part of its return for the taxable year
within which the reorganization occurred a complete statement of all
facts pertinent to the non-recognition of gain or loss in connection
with the reorganization, including:
1. A copy of the plan of reorganization, together with a statement
executed under the penalties of perjury, showing in full the
purposes thereof and in detail all transactions incident to, or
pursuant to the plan;
2. A complete statement of all cost or other basis of all property,
including all stocks or securities, transferred incident to the
plan;
3. A statement of the amount of stock or securities and other
property or money received from the exchange, including a
statement of all distribution of other disposition made thereof.
The amount of each kind of stock or securities and other
property received shall be stated on the basis of the fair market
value thereof at the date of the exchange;
4. A statement of the amount and nature of any liabilities assumed
upon the exchange, and the amount and nature of any liabilities
to which any of the property acquired in the exchange is
subject.
B. Every taxpayer, other than a corporation, party to the reorganization, who
received stock or securities and other property or money upon a tax-
free exchange in connection with a corporate reorganization shall
incorporate in his income tax return for the taxable year in which the
exchange takes place a complete statement of all facts pertinent to
the non-recognition of gain or loss upon such exchange, including:
1. A statement of the cost or other basis of the stock or securities
transferred in the exchange; and
2. A statement in full of the amount of stock or securities and other
property or money received from the exchange, including any
liabilities assumed upon the exchange, and any liabilities to
which property received is subject. The amount of each kind of
stock or securities and other property (other liabilities
assumed upon the exchange) received shall be set forth upon
the basis of the fair market value thereof at the date of the
exchange.DTEAHI

C. Records in substantial form shall be kept by every taxpayer who

participates in a tax-free exchange in connection with a corporate
reorganization showing the cost or other basis of the transferred
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 property or money received (including any liabilities assumed on the
exchange, or any liabilities to which any of the properties received
were subject), in order to facilitate the determination of gain or loss
from subsequent disposition of such stock of securities and other
property received from the exchange.
In addition to the foregoing requirements, the parties shall enclose with their
respective income tax returns for the taxable year in which the tax-free exchange
occurred a copy of the request for ruling led with, and the corresponding ruling issued
by the Bureau of Internal Revenue, both duly stamped received by the appropriate o ce
of the Bureau of Internal Revenue. Such persons shall include as a note to their
respective audited nancial statements for the taxable year in which the exchange
occurred a statement to the effect that they hold such assets/shares acquired in a tax-
free exchange and the year in which such exchange occurred, and in the taxable years
until the subject properties are subsequently transferred to another transferee.
The parties shall, cause to annotate on the at the back of the Certi cates of
Stock, the date the deed of exchange was executed, the original or historical cost of
acquisition of the properties or shares of stock involved, and the fact that no gain or
loss was recognized as a result of such exchange; provided however, that any violation
by the Corporate Secretary of this condition shall be penalized under Section 275 of the
same Code. It is further required that within ninety (90) days from receipt of this ruling,
the parties to the transaction must submit to the Law Division, Bureau of Internal
Revenue, a certi ed true copy by the Corporate Secretary, of duly annotated Certi cates
of Stock, in respect of the shares of stock of transferee corporation.
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.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

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