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Amended rule on minimum public ownership

In its executive session held on December 19 2011, the Securities and Exchange Commission resolved to approve the Philippine Stock Exchange's Amended Rule on Minimum Public Ownership. The Amended Rule, which took effect on January 1 2012, was issued in response to the position of the Bureau of Internal Revenue on the tax treatment of sales, barters or exchanges of shares of stock of listed companies that do not satisfy the minimum public ownership requirement.

As a rule, holders of shares of stock of listed companies enjoy a preferential tax rate of half of 1% of the gross selling price or gross value in money on disposals of such shares through the Exchange. The Bureau of Internal Revenue, however, is of the position that shareholders of listed companies that do not maintain, if not surpass, the minimum percentage of public ownership are not publicly-listed for taxation purposes and should, therefore, be subject to the usual 5%/10% tax on capital gains realised from sales, barters or exchanges of shares of stock.

Under the Amended Rule, listed companies are required, at all times, to maintain a minimum percentage of listed securities held by the public of 10% of the listed companies' issued and outstanding shares, exclusive of any treasure shares. For the purpose of determining compliance with the minimum percentage of public ownership, shares held by the following are generally considered "held by the public": (i) individuals (for as long as the shares held are not of a significant size (less than 10%) and are non-strategic in nature); (ii) trading participants (for as long as the shares held are non-strategic in nature); (iii) investment and mutual funds; (iv) pension funds; (v) PCD nominees; and (vi) social security funds.

Companies that are non-compliant with the minimum public ownership requirement as of December 31 2011 may be allowed a grace period not to exceed 12 months, or not beyond December 31 2012. Listed companies that still fail to meet the minimum percentage of public ownership after the lapse of the grace period will be suspended from trading for a period of not more than six months, and will be automatically de-listed if they remain non-compliant after the lapse of the suspension period. Companies de-listed due to their failure to comply with the minimum public ownership requirement are prohibited from applying for re-listing with the Exchange for five years.

Aaron Roi B Riturban

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