March 8, 2007

BIR RULING [DA-147-07]

Sections 40 (C) (2) & (6) (b); BIR Ruling No.

030-99,
DA-005-2002-A, DA-016-2002 & DA-017-
2002

Salvador Guevara & Associates

815-816, Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City

Attention: Atty. Euney Marie J. Mata-Perez

Gentlemen :

This refers to your letter dated January 3, 2007 requesting on behalf of

your clients, Holcim Philippines Manufacturing Corporation ("HPMC") and
Northern Mindanao Transport Co., Inc. ("NOMITRACO") for confirmation of
your opinion that the merger of HPMC and NOMITRACO, with HPMC as the
surviving corporation, is considered a tax-deferred merger pursuant to
Section 40 (C) (2) and (6) (b) of the Tax Code of 1997.
It is represented that —
1. HPMC is a domestic corporation organized primarily to acquire, own,
operate and maintain cement plants for the manufacture of all
kinds of cement and cement products, by-products, including its
derivatives, as well as to acquire, own, operate and maintain a
plant or plants for the manufacture of bags, packages or
containers necessary or useful in the production of cement,
cement-products and by-products, as well as carbide, dry ice,
fertilizers, etc.; to sell the same whether domestically or export to
foreign markets; to locate, lease, manage and operate mineral
claims containing lime, limestone, shale, silica, gypsum, marble,
granite and all other cement material or building stone and clay;
mineral deposits of petrochemicals, nickel, silver, copper, iron,
manganese, coal, quarries, warehouses, buildings, docks, piers,
barges, tugboats, lighters, trucks, railroad, airplanes, shipping
and communication facilities, equipment, appliances and
apparatus of all kinds, needed or useful in the manufacture,
transporting, selling of products of the corporation.
HPMC has an authorized capital stock (ACS) of Two Billion Six Hundred
Fifty Seven Million Five Hundred Thousand Pesos
(PhP2,657,500,000) divided into Two Million Six Hundred Fifty
Seven Thousand Five Hundred (2,657,500) common shares with a
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 par value of One Thousand Pesos (PhP1,000) per share, of which
Two Million Three Hundred Eight Thousand One Hundred Ninety
Three (2,308,193) shares are outstanding. The following are the
shareholders of HPMC:
No. of Amount Amount
Stockholder Shares Subscribed Paid

Union Cement Corp. 2,293,245 PhP2,293,245,000.00 PhP2,293,245,000.00

B.V. Holderfin 5,897 5,897,000.00 5,897,000.00
Fractional Shares 1,467 1,467,000.00 1,467,000.00
Jaime G. Lim or
Linda
G. Lim 385 385,000.00 385,000.00
PCD Nominee
Corporation 231 231,000.00 231,000.00
Jose Miguel T.
153 153,000.00 153,000.00
Arroyo
Julian Tan 150 150,000.00 150,000.00
Aristeo G. Puyat 139 139,000.00 139,000.00
Enrique Arcenas 99 99,000.00 99,000.00
Salma Pia T. Rasul 78 78,000.00 78,000.00
Others 6,349 6,349,000.00 6,349,000.00
––––––– ––––––––––––––– –––––––––––––––
Total 2,308,193 PhP2,308,193,000.00 PhP2,308,193,000.00
=================== =============
2. On the other hand, NOMITRACO is a domestic corporation organized
primarily to purchase, charter, hire, manage or otherwise acquire
ships, boats, barges, lighters, launches and vessels of any kind,
together with equipment and furnishings therefore and
appurtenant thereto and to employ the same in conveyance and
carriage of goods, wares and merchandise of every description in
Philippine coastwise traffic.
NOMITRACO had an ACS of One Hundred Million Pesos
(PhP100,000,000) divided into Ten Million (10,000,000) common
shares, of which Seven Million Two Hundred Fifty Thousand
(7,250,000) shares are outstanding. NOMITRACO is a wholly-
owned subsidiary of HPMC.
According to its Financial Statements, for the period ending on
December 31, 2005, NOMITRACO had unutilized Net Operating
Loss Carry-Over (NOLCO) and excess Minimum Corporate Income
Tax (MCIT) in the following amounts:
Date Incurred Expiry Date NOLCO MCIT

December 31, 2003 December 31, 2006 PhP 53,753,054

December 31, 2004 December 31, 2007 196,201,720
December 31, 2005 December 31, 2008 PhP3,920,305
—————— ——————
PhP249,954,774 PhP3,920,305
========== ==========

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 3. HPMC and NOMITRACO merged, with HPMC as the surviving
corporation, to achieve economy of scale and efficiency of
operations through the integration of administrative facilities and
more productive use of the properties of the two corporations.
The merger was effected pursuant to Sections 76 to 80 of the
Corporation Code of the Philippines and approved by the
Securities and Exchange Commission (SEC) on June 29, 2006.
4. The Plan of Merger executed by and between HPMC and NOMITRACO
provided that the effective date of merger shall be the end of the
month of the date of SEC approval of the merger. Accordingly,
the merger of HPMC and NOMITRACO became effective as of June
30, 2006.
5. The Plan of Merger also provided that HPMC shall be the surviving
corporation while NOMITRACO shall be the absorbed corporation.
Consequently, on June 30, 2006, NOMITRACO ceased to exist by
operation of law and all its assets and liabilities were conveyed,
assigned, and transferred to HPMC as a consequence of the
merger. As of the effective date of merger NOMITRACO had no
investments in shares of stock and no real property in its name to
transfer to HPMC by virtue of the merger.
6. Pursuant to sound corporate practice, no shares of stock of HPMC
have been issued, on the occasion of the merger, in exchange for
the net assets transferred by NOMITRACO to HPMC, considering
that NOMITRACO is wholly-owned subsidiary of HPMC.
Accordingly, the outstanding certificates of stock of NOMITRACO
held by its stockholders (i.e., HPMC and its nominees) have been
surrendered for cancellation.
We now rule on the issues raised for our consideration:
1. The above reorganization between HPMC and NOMITRACO is a
merger within the contemplation of Section 40 (C) (2) and (6) (b) of the Tax
Code of 1997 since HPMC acquired/assumed all the assets and liabilities of
NOMITRACO although no HPMC share was issued to NOMITRACO since on
the effective merger date, NOMITRACO is wholly owned by HPMC, the
transaction undertaken being for a bona fide business purpose and not
intended to escape the burden of taxation.
The tax deferred character of the merger under Section 40 (C) and (6)
(b) of the Tax Code of 1997 is not affected by the non-issuance of the
surviving corporation of its shares of stock in exchange for the assets and
liabilities of the absorbed corporation in cases of merger of a parent
corporation and its subsidiary. Since NOMITRACO is a wholly-owned
subsidiary of HPMC, the tax-deferred character of the merger of HPMC and
NOMITRACO is not affected by the non-issuance by HPMC, the surviving
corporation, of its shares of stock in exchange for the assets and liabilities of
NOMITRACO, the absorbed corporation.
Therefore, no gain or loss shall be recognized by:
a. NOMITRACO, the absorbed corporation, as the transferor, on its
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 assignment of all assets and liabilities to HPMC pursuant to the
Plan of Merger; and
b. HPMC, the surviving corporation, as the transferee, on its receipt of
the assets and liabilities of NOMITRACO without issuing shares of
stock in exchange therefor.
NOMITRACO will not be subject to income tax, capital gains tax, or
creditable withholding tax on the transfer of its properties to HPMC since no
gain or loss will be recognized to NOMITRACO upon the transfer and
conveyance of its properties to HPMC by virtue of the merger.
It is understood, however, that upon the subsequent sale or exchange
of the assets acquired by HPMC, the gain derived from such sale or exchange
shall be subject to income tax.
2. The basis of the assets that will be recognized by HPMC shall be the
same as it would be in the hands of NOMITRACO.
3. Since no shares of stock were issued pursuant to the Plan of Merger,
Section 174 of the Tax Code of 1997, as amended by Republic Act No. 9243,
imposing documentary stamp tax (DST) on original issuance of shares of
stock, is inapplicable to the present case. No DST shall also be due on the
surrender by the stockholders of their shares in NOMITRACO for cancellation.
Since NOMITRACO had no shares of stock or real property in its name to
transfer to HPMC pursuant to the merger, neither party shall be liable for
DST on transfers or exchanges of shares of stock and real property, under
Section 175 and 196 of the Tax Code of 1997, respectively. Moreover,
Section 199 (m) of the Tax Code of 1997 exempts from DST transfers of
property pursuant to Section 40 (C) (2) of the Tax Code of 1997.
4. The merger is not subject to donor's tax as there is no intention to
donate on the part of HPMC or NOMITRACO. DEHaTC

5. The transfer of the assets by NOMITRACO to HPMC pursuant to the

plan of merger will not be subject to value-added tax (VAT). Any unused
input tax of NOMITRACO as of the effective date of merger will be absorbed
by HPMC, as the surviving corporation, pursuant to Revenue Regulations No.
7-95, otherwise known as the "Consolidated Value-Added Tax Regulations."
6. The aggregate NOLCO balances of NOMITRACO, the absorbed
corporation may be claimed by HPMC, the surviving corporation as a
deduction from gross income under Section 34 (D) (3) of the Tax Code of
1997 subject to the three (3)-year period limitation. The NOLCO balance of
the absorbed corporation shall be transferred and vested in the surviving
corporation by operation of law. This is because NOLCO balance is among
the rights, privileges, property and/or interest of the absorbed corporation
and considering further that the merger will be undertaken for a bona fide
business purpose and not for the purpose of escaping the burden of taxation
and there is no effective change of ownership. Accordingly, HPMC may use
NOLCO in the amount of PhP53,753,054 until December 31, 2006 and the
amount of PhP196,201,720 until December 31, 2007.
7. The excess MCIT of the absorbed corporation shall be carried
forward and credited against the normal income tax due of the surviving
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 corporation for the three immediately succeeding taxable years pursuant to
Section 27 (E) (3) of the Tax Code of 1997. Since the excess MCIT of the
NOMITRACO are among its rights, privileges, property and/or interest as the
absorbed corporation, the excess MCIT of NOMITRACO shall be transferred to
and vested in HPMC, the surviving corporation on the effective date of the
merger. Thus, the excess MCIT of NOMITRACO shall be carried forward, and
credited against the normal corporate income tax of HPMC for the next three
(3) immediately succeeding taxable years, or until December 31, 2008.
However, in order that the above-described reorganization can be
considered as merger under Section 40 (C) (2) of the Tax Code of 1997, the
parties to the merger should comply with the following requirements:
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 officers and appearing
upon the official records of the corporation. Each corporation,
which is a party to the reorganization, shall file, 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 the cost or other basis of all
properties, 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 or 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; and
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, who is a 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
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 2. A statement in full of the amount of the stock or securities and
other property or money received from the exchange,
including any liability assumed upon the exchange, and any
liability 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 exchange.
C. Permanent 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 property or money received (including any
liability assumed on the exchange, or any liability to which any of
the properties received were subject), in order to facilitate the
determination of gain or loss from a subsequent disposition of
such stock or securities and other property received from the
exchange. (par. 9803-8, Prentice Hall 1963, ed., p. 9611) DCcTHa

Finally, the parties shall cause the Register of Deeds to annotate on the
Transfer Certificates of Title, the original or historical cost of acquisition of
the properties, the date the transaction takes place and the fact that no gain
or loss was recognized as a result of the merger, provided, however, that
any violation by the Register of Deeds of the provisions of Section 58 (E) of
the Tax Code of 1997, shall be subject to penalties under Section 269 of the
said Code. The parties shall likewise cause the annotation at the back of the
Certificates of Stock of the shares owned by NOMITRACO transferred to
HPMC pursuant to the merger, the fact that no gain or loss was recognized
as a result of the merger, the date the transaction (merger) takes place and
the historical cost of acquisition of the shares transferred.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be disclosed that the
facts are different, and/or any of the requirements imposed in this letter is
not complied with, then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

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