Dear Kim,

This refers to your request for legal advisory on the taxes payable for the transfer of the
following properties from Oro Marine Resources Incorporated to De Oro Resources
Incorporated:
Property Name: Oro Marine Resources Incorporated

TCT Details Area Lot Address

TCT 44761 Processing Plant 3069 sq meters Suba Basbas, Lapu- Lapu City
TCT Staffhouse 3105 Suba Basbas, Lapu- Lapu City
7949-
TCT 31778 Fishpond 81687 sq meters a Baybay, Leyte
7948-
TCT Fishpond 17319 sq meters a Baybay, Leyte
7949-
TCT 7949-C Fishpond 1000 sq meters c Baybay, Leyte

There are 3 kinds of taxes payable for the sale transaction involving the above properties,
namely:

1) The Creditable Withholding Tax

2) The Value Added Tax and
3) The Documentary Stamp Tax

We shall go through the above one by one:

1) Creditable Withholding Tax

Under the Tax Code and implementing regulations, the withholding agent/buyer is required to
withhold a creditable withholding tax based on the higher of the following:

a) gross selling price/total amount of consideration, or

b) the fair market value determined in accordance with Section 6(E) of the Code.

The fair market value is the figure with the highest value between the fair market value from the
tax declaration and the zonal value per the BIR records.

In determining the sale price in your Deed of Sale and in order to minimize the taxes payable, we
recommend to use the amount which is the highest value between the fair market value from the
tax declaration and the zonal value per the BIR records.

Under Section 2.57.2 (J) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001,
the percentages of taxes to be withheld are as follows:
Where the seller/transferor is not habitually engaged in the real estate business (but the real
6.0%
estate sold is an ordinary asset)

We provide the following computation on the withholding tax payable as well as our
recommendation on what amount to use as the sale price in the Deed of Sale. For lots with no tax
declarations, we placed the amount in blank but since we have the BIR zonal valuations, we can
rely on said zonal values which are much more updated and usually higher in amount as
compared to the values in the tax declarations. We secured the BIR zonal valuation (which is
normally above the tax declaration fair market value) amounts from the BIR website. Also note
that the computations below are estimates and may vary depending on the details of the
information regarding the properties. Zonal values for example differ depending on the specific
address or the street location of the properties so please confirm this with the local BIR to be
sure:

BASIS OF THE
WITHHOLDING
TAX AND
RECOMMENDED
AMOUNT AS SALE
PRICE IN THE
DEED OF SALE
(whichever is
higher of BIR
Zonal Value or Creditable
Fair Market Fair Market Withholding Tax
TCT BIR Zonal Value Value Value) Payable
TCT 11,508,750(P3,750 per sq.m.-
44761 commercial) P6,138 11,508,750 690,525
15,138,550 (P1,850 per sq.m.-
Lot 3105 residential) P8,019,340 15,138,550 908,313
TCT
31778 153,163,125 (1,875 per sq.m.) 153,163,125 9,189,787.50
TCT 32,473,125 (1,875 per sq.m.) 32,473,125 1,948,387.50
TCT 7949-
C 1,875,000 (1,875 per sq.m.) 1,875,000 112,500

Creditable withholding taxes deducted and withheld by the withholding agent/buyer on the sale,
transfer or exchange of real property classified as ordinary asset, shall be paid by the withholding
agent/buyer upon filing of the return with the Authorized Agent Bank (AAB) located within the
Revenue District Office (RDO) having jurisdiction over the place where the property being
transferred is located within ten (10) days following the end of the month in which the
transaction occurred. The creditable withholding tax return is BIR Form 1606. Taxes withheld in
December shall be filed on or before January 15 of the following year. Please note that this is
subject to the rules prescribed by Electronic Filing and Payment System (EFPS) regulations in
case the taxpayer is an EFPS taxpayer.

2. Value Added Tax

In addition to the withholding tax, the sale of real property held as an ordinary asset will also be
subject to value-added tax (VAT) at the rate of 12 percent of the gross selling price or the fair
market value of the property, whichever is higher. VAT is paid to the BIR by the seller, but the
seller is allowed to pass this on to the buyer.

We provide our computation of the VAT payable:

TCT VAT Payable

TCT 44761 1,381,050
Lot 3105 1,816,626
TCT 31778 18,379,575
TCT 3,896,775
TCT 7949-C 225,000

3. Documentary Stamp Tax

Whether the real property sold is a capital asset or an ordinary asset, documentary stamp tax
(DST) at the rate of P15 for every P1,000 of the gross selling price or the fair market value of the
property, whichever is higher, will likewise have to be paid. The parties to a sale agree on who
will be liable to pay the DST, but in practice, this is, more often than not, shouldered by the
buyer. DST must be paid within the first five days of the month following the date of the sale.

We provide the following computations for the estimated DST payable:

TCT DST Payable

TCT 44761 172,631.25
Lot 3105 227,078.25
TCT 31778 2,297,446.88
TCT 487,096.88
TCT 7949-C 28,125

RECOMMENDATION

Based on the above discussions, it is clear that transferring the properties from Oro Marine
Resources to De Oro Resources would involve a huge amount of money for the taxes and for
processing fees to implement the sale transaction.
Atty. Rolando Nonato and I brainstormed and made further discussions on an alternative which
De Oro Resources can adopt to avoid paying huge taxes and we came up with the following
suggestion and recommendation:

If the intention is for De Oro Resources to use the properties currently held by and under the
name of Oro Marine Resources as collateral for a bank loan, then it may be feasible and less
expensive and much simpler for the Board of Directors of Oro Marine Resources to just execute
a board resolution allowing De Oro Resources to use the properties it owns as collateral in a
bank loan. Oro Marine Resources would in effect be an accommodation party or a surety in the
loan. In order to do this however, you need to make sure that Oro Marine Resources is in good
standing with both the Bureau of Internal Revenue and the Securities and Exchange
Commission. You must make sure that the SEC license or Certificate of Incorporation of Oro
Marine is still valid and not have been revoked by the SEC. If so revoked by the SEC, we may
try filing a Petition to Lift Revocation with the SEC to reinstate the corporate life of Oro Marine.
This process is complicated and may not be easy but will definitely be less expensive compared
to paying the taxes discussed above in a sale transaction between Oro Marine and De Oro
Resources.

We attach in this legal opinion our bill for legal advisory services in the agreed fee of P10,000.

We hope the foregoing is sufficient for your purposes.

Best Regards,
Rester