BIR Ruling 25-2002 June 25, 2002

June 25, 2002
BIR RULING NO. 025-02

29
SGV & Co.
6760 Ayala Avenue
1226 Makati City
Attention: R. C. Vinzon
Tax Division
Gentlemen :
This refers to your letter dated January 24, 2002 requesting on behalf of
your client, Abbott Laboratories (Philippines), Inc. hereinafter referred to as
"Abbott-Phils." for confirmation that Abbott-Phils. is a publicly held corporation
as defined under Revenue Regulations No. 2-2001, and hence, exempt from the
Improperly Accumulated Earnings Tax (IAET) imposed under Section 29 of the
Tax Code of 1997.
It is represented that Abbott-Phils. is a corporation duly organized and
existing under the laws of the Philippines with office address at 102 Epifanio De
Los Santos Avenue, Mandaluyong City; that it is engaged in the business of
manufacturing, buying, selling, importing, exporting, dealing of various drugs,
pharmaceutical products and supplies as provided in its Articles of Incorporation;
that Abbott-Phils. is a wholly owned subsidiary of Abbott Laboratories (USA)
(hereinafter referred to as Abbott-US); that Abbott-US is a corporation organized
and existing under the laws of the State of Illinois, USA whose shares are listed
and traded in the New York Stock Exchange (NYSE) and six other stock
exchanges; that as of year-end 2000, Abbott-US had 101,272 shareholders holding
a combined 1,545,934,133 shares of common stock; and that in support of your
request you submitted to this Office the following documents:
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1.
Copy of the year 2000 Annual Report of Abbott-US;
2.
Notice of Annual Meeting of Shareholders and Proxy Statement
CD Technologies Asia, Inc. and Accesslaw, Inc.
Philippine Taxation Encyclopedia First Release 2014
for 2001; and

3.
Duly authenticated Certification of the Vice-President and

Treasurer of Abbott-US to the effect that as of September 30,
2001 (the most recent date for which the Securities and
Exchange Commission Schedule 13F filings are available) the
twenty largest shareholders of Abbott-US owned an aggregate
of 30.1 percent of Abbott-US's issued and outstanding common
shares.
In reply, please be informed that pursuant to Section 4 of Revenue

Regulations No. 2-2001, "Implementing the Provision on Improperly Accumulated
Earnings Tax under Section 29 of the Tax Code of 1997" viz:
"For purposes of these Regulations, closely-held corporations are
those corporations at least fifty percent (50%) in value of the outstanding
capital stock or at least fifty percent (50%) of the total combined voting
power of all classes of stock entitled to vote is owned directly or indirectly by
or for not more than twenty (20) individuals. Domestic corporations not
falling under the aforesaid definition are, therefore, publicly-held
corporations."
For purposes of determining whether the corporation is a closely held

corporation, insofar as such determination is based on stock ownership, the
following rates shall be applied .
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(1)
Stock Not Owned by Individuals Stock owned directly or

indirectly by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by its
shareholders, partners or beneficiaries.
(2)
Family and Partnership Ownership An individual shall be

considered as owning the stock owned, directly or indirectly, by
or for his family, or by or for his partner. For purposes of this
paragraph, the `family of an individual' includes his brothers or
sisters (whether by whole or halfblood) spouse, ancestors and
lineal descendants.
(3)
Option to Acquire Stocks If any person has an option to

acquire stock, such stock shall be considered as owned by such
person. For purposes of this paragraph, an option to acquire
such an option and each one of a series of option shall be
considered as an option to acquire such stock.
(4)
Constructive Ownership as Actual Ownership Stock
constructively owned by reason of the application of paragraph

(1) or (3) hereof shall, for purposes of applying paragraph (1)
or (2), be treated as actually owned by such person, but stock
constructively owned by the individual by reason of the
application of paragraph (2) hereof shall not be treated as
owned by him for purposes of again applying such paragraph in
order to make another the constructive owner of such stock.
Such being the case, since Abbott-Phils. is a wholly-owned subsidiary of
Abbott-US, such shares will be considered as being owned proportionately by the
Abbott-US shareholders. The ownership of a domestic corporation for purposes of
determining whether it is a closely held corporation or a publicly held corporation
is ultimately traced to the individual shareholders of the parent company. Thus,
where at least 50% of the outstanding capital stock or at least 50% of the total
combined voting power of all classes of stock entitled to vote in a corporation is
owned directly or indirectly by at least 21 or more individuals, the corporation is
considered publicly-held corporation as the term is defined under the Regulations.
Further, Section 29 of the Tax Code of 1997 provides, viz :
"Sec. 29.
Imposition of Improperly Accumulated Earnings Tax.
(A) . . .
(B) Corporations Subject to Improperly Accumulated Earnings
Tax.
(1) In General. The improperly accumulated
earnings tax imposed in the preceding Section shall apply to
every corporation formed or availed for the purpose of
avoiding the income tax with respect to its shareholders or
the shareholders of any other corporation, by permitting
earnings and profits to accumulate instead of being divided
or distributed.
(2) Exceptions. The improperly accumulated
earnings tax as provided for under this Section shall not
apply to:
(a)
Publicly-held corporation;
(b) Banks
intermediaries; and
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and
other
non-bank
financial
(c)
Insurance Companies. (Emphasis ours)
xxx
xxx
xxx."
Accordingly, this Office confirms your opinion that Abbott-Phils. is

considered a publicly-held corporation exempt from the Improperly Accumulated
Earnings Tax (IAET), based on the representation that as of the year-end 2000,
Abbott-US had 101,272 shareholders holding a combined 1,545,934,133 shares of
common stock and the twenty largest shareholders of Abbott-US as of September
30, 2001 own an aggregate of 30.1 percent of Abbott-US' issued and outstanding
shares.
This ruling is being issued in 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.) REN G. BAEZ

Commissioner of Internal Revenue
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BIR Ruling 25-2002 June 25, 2002

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June 25, 2002

BIR RULING NO. 025-02

Copy of the year 2000 Annual Report of Abbott-US;

Notice of Annual Meeting of Shareholders and Proxy Statement

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014

for 2001; and

Duly authenticated Certification of the Vice-President and

In reply, please be informed that pursuant to Section 4 of Revenue

For purposes of determining whether the corporation is a closely held

Stock Not Owned by Individuals Stock owned directly or

Family and Partnership Ownership An individual shall be

Option to Acquire Stocks If any person has an option to

Constructive Ownership as Actual Ownership Stock

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014

constructively owned by reason of the application of paragraph

Imposition of Improperly Accumulated Earnings Tax.

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014

Insurance Companies. (Emphasis ours)

Accordingly, this Office confirms your opinion that Abbott-Phils. is

Very truly yours,

(SGD.) REN G. BAEZ

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014

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