April 3, 1997

BIR RULING NO. 039-97

21 (d), 24 (e) (2) 000-00 039-97

Romulo, Mabanta, Buenaventura

Sayoc & De Los Angeles
30/F Citibank Tower
Paseo de Roxas, Makati City
Attention: Edmundo P. Guevarra
and
Priscilla B. Valer

Gentlemen :

This refers to your letter dated February 20, 1997 requesting, in behalf of your
client, the Philippine Central Depository, Inc. ("PCD"), for confirmation of your
opinion that the transfer of legal title to outstanding shares of stock, without a transfer
of beneficial title, from stockholders to the PCD Nominee Corp., as nominee, and
vice-versa, is not subject to the capital gains tax imposed under Sections 21 (d), 22(a)
(3), 24(e) (2) and 25(a) (6) (C) of the Tax Code or the stock transaction tax imposed
under Section 124-A of the Tax Code and the documentary stamp tax imposed under
Section 176 of the Tax Code.

It is represented that PCD is an entity licensed by the Securities and Exchange

Commission ("SEC") as a depository of, among others, shares of stock listed and
traded in the Philippine Stock Exchange ("PSE"); that its primary mandate is, among
others, to introduce a scripless book-entry system for the settlement of PSE trades, in
order to address the problem of delay, inefficiency and even fraud attending the
existing paper-based settlement procedure; that for PCD to carry out this mandate, the
shares of stock of the PSE-listed companies must first be "lodged" into the PCD
System for "immobilization"; that lodgment is the process by which stockholders of
the PSE-listed company transfer the legal title over their shares of stock in favor of
PCD Nominee Corp. ("PCD Nominee"), a corporation wholly owned by PCD whose
sole purpose is to act as nominee and legal title holder of all shares of stock lodged
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 into PCD (beneficial title to the "lodged" shares remains with the lodging
stockholders); that immobilization is the process by which the share certificates of
lodging stockholders are cancelled by the Transfer Agent and a new stock certificate
covering all the shares lodged ("Jumbo Certificate") issued in the name of PCD
Nominee, in order that settlement of PSE trades of the PSE-listed company can be
effected by mere book-entry transfer of beneficial title in the PCD System without the
transfer of stock certificates covering the traded shares; and that no consideration is
paid for the transfer of legal title to PCD Nominee.

The Corporation Code requires that all shares of stock of a corporation must be
evidenced by a certificate and a stockholder who has fully paid his subscription has
the right to demand such certificate. Thus, it is also represented that if a stockholder
wishes to withdraw his stockholdings from the PCD System, the PCD has a procedure
of "upliftment", under which PCD Nominee will now transfer back to the stockholder
the legal title to the shares lodged in order that legal and beneficial title will once
again be consolidated in the stockholder; that under this process, the Jumbo
Certificate is surrendered to the Transfer Agent, which then issues a new stock
certificate in the name of the uplifting stockholder and a new Jumbo Certificate for
the balance; and that again, no consideration is paid for the transfer of legal title back
to the beneficial owner.

In reply, please be informed that the conveyance of the legal title over the
shares to a trustee or nominee without transfer of beneficial title and without any
consideration does not involve an actual transfer of ownership over the shares, hence,
not subject to the capital gains tax and documentary stamp tax. Thus, your opinion
that the transfer of legal title over the shares from the lodging stockholders to PCD
Nominee Corp., or from PCD Nominee Corp. to the uplifting stockholders, is not
subject to capital gains tax or stock transaction tax and documentary stamp tax
because there is no actual transfer of ownership over the aforementioned shares of
stock is hereby confirmed. (BIR Ruling Nos. UN-258-95, 123-93, 124-93, 125-93,
127-93, 128-93 and 129-93) However, the transfers of beneficial ownership over the
lodged shares shall be subject to capital gains tax or stock transaction tax, as the case
may be, and to documentary stamp tax.

Moreover, under Section 191 of the Documentary Stamp Tax Regulations

(Revenue Regulations No. 26), the conveyance of property to a trustee is exempt from
documentary stamp tax. Section 191 of said Regulations provides:

"Section 191. Conveyance to trustees or from trustee to cestui que

trust, without consideration. Conveyances to a trustee without valuable

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 consideration, or from a trustee to a cestui que trust without valuable
consideration are not subject to tax."

Thus, your opinion that the conveyance of the shares from the stockholders to
the nominee — PCD Nominee Corporation and versa, is not subject to documentary
stamp tax pursuant to Section 191 of Revenue Regulations No. 26, otherwise known
as The Documentary Stamp Tax Regulations, is likewise hereby confirmed.

Accordingly, the Transfer Agents of the publicly listed companies may cancel
the outstanding shares certificate in the name of the stockholders and issue the Jumbo
Certificate in the name of PCD Nominee Corporation for immobilization. Likewise,
in the event a shareholder withdraws his stockholdings from the PCD System, the
Transfer Agents shall likewise issue a new stock certificate in the name of the
uplifting stockholder and a new Jumbo Certificate for the balance upon surrender of
the original Jumbo Certificate in order that the legal and beneficial title will once
again be consolidated in the stockholder.

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. aisadc

Very truly yours,

LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue

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