BIR Ruling

February 19, 1974 Messrs. Sycip, Salazar, Luna Manalo and Feliciano 3rd Floor, Far East Building Buendia Ave., Makati, Rizal Attention: Atty . A . Gatmaitan Gentlemen : This refers to your letter dated February 12, 1974, requesting information as to the tax incidents of a stock transaction briefly summarized as follows: cdt Tubbs Cordage Company (Tubbs) is a non-resident foreign corporation organized and existing under the laws of California, U.S.A. It owns approximately 95% of the total outstanding capital stock of Manila Cordage Company (Manco), a domestic corporation. In line with the plan to Filipinize the shareholdings of Manco, Tubbs will dispose of to Filipino purchasers some of its shareholdings in Manco to bring down its equity in Manco to 40% and thus increase the Filipino equity therein to 60%. The Filipino purchasers negotiated the purchase with Tubbs' officers in San Francisco, but in order to minimize the expenses of the Filipino purchasers, the purchase agreements will be executed in Hongkong. Under the purchase agreement, the shares are to be sold in Hongkong, that is, the stock certificates covering the shares are to be delivered in Hongkong and title and all interests thereto will pass to the purchasers in Hongkong. It appears that the stock transaction was actually already consummated and the purchase agreements were executed before a notary public in Hongkong. Two (2) of the sales were on installment basis, with interest, while six (6) were on cash basis. The purchase price will be remitted to the seller thru the Chartered Bank Hongkong. In reply to the queries now posed by you, I have the honor to inform you that the gain realized by Tubbs in the transaction is considered income from sources outside the Philippines pursuant to Section 37(e) of the National Internal Revenue Code. It is not, therefore, subject to Philippine income tax, and necessarily not also subject to the withholding tax provisions of the National Internal Revenue Code. (Collector of Internal Revenue v. Anglo California National Bank (Crocker-Anglo National Bank), as Trustee for Calamba Sugar Estate, Inc., G.R. No. L-12476, January 29, 1970) The transaction is not subject to the stock transaction tax prescribed by R.A. No. 6141, as amended by P.D. No. 10, it having been effected outside the taxing jurisdiction of the Republic of the Philippines. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5