May 7, 1993 BIR RULING NO.

197-93 PROPERTY DIVIDENDS RECORDED AT BOOK VALUE 21 (c) (2) 108-93 197-93 Gonzalo Puyat & Sons, Inc. 4th Floor, ENZO Building 399 Sen. Gil J. Puyat Avenue Makati, Metro Manila Attention: Mr. Rodolfo G. Honrado Assistant Manager This refers to your letter, dated May 5, 1993, stating that your company, GONZALO PUYAT & SONS, INC. (hereinafter referred to as "GONPU"), is a domestic corporation with an authorized capital stock of Three Hundred Million Pesos (P300,000,000.00), consisting of Three Million (3,000,000) common shares of stock, with a par value of One Hundred Pesos (P100.00) per share, of which One Million Eighty-One Thousand Two Hundred Sixty Three (1,081,263) common shares of stock are issued and outstanding as of December 31, 1992; and that as of December 31, 1992, it had a total stockholders' equity in the amount of Three Hundred Sixty-Five Million Eight Hundred Seven Thousand Fifty-Two Pesos (P365,807,052.00), which includes unrestricted retained earnings in the amount of Two Hundred Million Seven Hundred Thirty-Eight Thousand Four Hundred FiftyTwo Pesos (P200,738,452.00); that on May 5, 1993, the Corporation declared property dividends in the amount of One Hundred Eighty-Nine Million Six Hundred Thirty-Six Thousand Nine Hundred Eighty-Nine and 90/100 Pesos (P189,636,918.90), out of its unrestricted retained earnings as of December 31, 1992, in favor of the stockholders of record as of May 5, 1993, to be distributed on or before May 30, 1993; consisting of shares of stock with a total book value of One Hundred Seventy-Two Million Nine Hundred Fifty-Seven Thousand Eight Hundred Eighty and 10/100 Pesos (P172,957,880.10), and real estate properties in the amount of Sixteen Million Six Hundred Seventy-Nine Thousand Thirty-Two and 84/100 Pesos (P16,679,032.84), which are more particularly described, as follows: cdt A. SHARES OF STOCK Description Book Value 1. 1,804,412 shares of stock P108,544,021.80 in Surigao Development Corporation 565,637;

2.

565,637 shares of stock in International Pipe Industries Corporation;

5,656,370.00

3.

915,980 shares of stock in Puyat Steel Corporation;

42,157,558.30

4.

1,179,993 shares of stock 11,799,930.00 in PFM Agro-Industrial Development Corporation; and

5.

4,800,000 shares of stock in Surigao Marine Products Inc. Total P172,957,880.10 =============

4,800,000.00

B.

REAL ESTATE PROPERTIES Description Book Value

1.

Several parcels of land

P551,777.15

situated in 170 Rodriquez Aria, San Miguel, Manila; 2. A parcel of land situated 360,000.00 in Aguado, San Miguel, Manila; 3. A parcel of land situated in Escolta corner David Street, Manila; 4. Several parcels of land situated in Bo. Ugong, Pasig, Metro Manila; 5. Several parcels of land situated 24,302.28 in Pasay City, Metro Manila; 6,808.20 1,883,400.00

6.

Several parcels of land situated in Makati, Metro Manila;

8,796,234.76

7.

Several parcels of land

170,006.25

situated in Cupang, Muntinlupa, Metro Manila; 8. Several parcels of land 174,400.00

situated in Baguio City; and 9. Several parcels of land 4,712,110.20

situated in Nasugbu, Batangas Total P16,679,038.84 ============ that the said real and personal properties are capital assets of GONPU, which are not used and not intended to be used by GONPU in its ordinary course of business; that the properties declared as dividends were recorded in the books of the Corporation at their book value; that the total book value of the property dividends is equivalent only to Twenty-Five Percent (25%) of GONPU's assets for the year ended December 31, 1992; and GONPU continues to do business and its stockholders have no intention of liquidating the corporation after the declaration of property dividends. In connection therewith, you now request confirmation of your opinion, as follows: "1. The declared property dividend, consisting of real estate properties and shares of stock in another corporation, can be recorded at their respective book value in the books of GONPU, and GONPU'S stockholders can record the dividends thus received at GONPU's book value. . . .; "2. The declared property dividend which shall be received by the stockholders of GONPU shall be subject to a final withholding tax of zero (0%) percent, and the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of these properties as property dividend. . . .; "3. GONPU shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the real estate declaring said property dividends. This is because there is no realized gain,

considering the fact that the value used at the time of distribution is the book value; "4. Upon subsequent sale of other disposition of the properties received as property dividends by GONPU's stockholders, the basis of the taxation of the subsequent sale, or other disposition, shall also be its book value at the time of the dividend distribution; and "5. That the amount of the documentary stamp tax on the Deeds of Conveyance to be executed between GONPU and the recipient stockholders covering the real estate properties, declared as property dividends, shall be based on the book value of said real estate properties. . . . , at the rate of ten (P10.00) pesos for every one thousand pesos (P1,000), or a fractional part thereof, of the book value of the real estate properties declared as dividends (Section 196, Tax Code). On the other hand, the documentary stamp tax on the Deeds of Conveyance to be executed between GONPU and the recipient stockholders, covering the shares of stock to be declared as property dividend shall be based on the par value of the shares of stock at the rate of fifty centavos (P0.50) for each two hundred pesos (P200.00), or fractional part thereof, of the value of the shares of stock declared as property dividends (Section 176, Tax Code). In both cases, the documentary stamp tax shall be due and payable on the day of execution of the Deeds of Conveyance (Section 173, Tax Code, as amended)." In reply, thereto, I have the honor to inform you, as follows: 1. The property dividend shall be recorded at book value in the books of both the issuing corporation and the recipient stockholder. BIR Ruling No. 21(c) (2)028-89-130-89, applying Sections 250 and 251 of Revenue Regulations No. 2, stating that dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested, are income to the recipients to the amount of the full market value of such property when receivable by individual stockholders has already been modified, having been rendered obsolete by Executive Order No. 37 (effective August 1, 1986), subjecting to income tax at 0% effective January 1, 1989, dividends received from a domestic corporation and the share of an individual partner in a partnership subject to tax under Section 24(a) of the Tax Code (BIR Ruling No. 276-91, dated December 26, 1991). 2. That we confirm your opinion that the declared property dividends which shall be received by the stockholders of GONPU shall be subject to a final withholding tax of zero (0%) percent, and the receiving stockholders shall not be subject to any income or capital gains tax arising from their receipt of these properties as property dividend (Section 21(c)(2) of the Tax Code, as amended by Executive Order No. 37). However, certificates authorizing transfer of real estate properties without payment of the capital gains tax shall be secured from the Revenue District Officer of the Revenue District where the principal place of office of the corporation declaring the dividends is located. It shall be the ministerial duty of the Revenue District Officer to issue said certificates.

3. That we also confirm your opinion that GONPU shall not be subject to any income or capital gains tax on the difference between the fair market value and the book value of the property dividends. This is because there is no realized gain, considering the fact that the value used at the time of distribution is the book value. 4. That upon subsequent sale or other disposition of the property received as dividends by GONPU's stockholders, the basis of taxation of the subsequent sale or other disposition shall also be its book value at the time of the dividend distribution. 5. That the amount of the documentary stamp tax on the Deeds of Conveyance to be executed between GONPU and the recipient stockholders, covering the real estate properties declared as property dividends, shall be based on the book value of said real estate properties, . . ., at the rate of ten (10) pesos for every one thousand pesos (P1,000.00) or fractional parts thereof, of the book value of the real properties declared as dividends (Section 196, Tax Code). On the other hand, the documentary stamp tax on the Deeds of Conveyance to be executed between GONPU and the recipient stockholders, covering the shares of stock to be declared as property dividends shall be based on the par value of the shares of stock, at the rate of fifty centavos (P0.50) for each two hundred pesos (P200.00), or fractional part thereof, of the value of the shares of stock declared as property dividends (Section 176, Tax Code). In both cases, the documentary stamp tax shall be due and payable on the day of execution of the Deeds of Conveyance of the Deeds of Conveyance (Section 173, Tax Code, as amended). This shall serve as your authority to obtain, after payment of documentary stamp taxes, due, the necessary certificates authorizing transfer of the real estate properties from the Revenue District Officer of the Revenue District Office where the real estate properties are located, and the certificate authorizing transfer of the shares of stock, from the Revenue District Officer of the Revenue District Office where the principal office of GONPU is located. aisadc VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue