BIR Ruling [DA-047-99]

January 25, 1999 BIR RULING [DA-047-99] Metaphis N. V. Scharlooweg 81, P.O. Box 504 Curacao, Netherlands Antilles Attention: Mr . Jesus M . Zulueta, Jr . Gentlemen : This refers to your letter dated November 25, 1998 requesting for a ruling that the sale by Metaphis N. V. (Metaphis) of its shares of stock in Pampanga Energy Ventures, Inc. (PEVI), a domestic corporation, to East Asia Transmission and Distribution Corporation (EATDC) is not subject to capital gains tax pursuant to Article 13 of the RP Netherlands Tax Treaty. It is represented that Metaphis is a corporation organized and existing under the laws of Netherlands Antilles; that it is not engaged in trade or business in the Philippines and does not maintain a branch office or any other place of business in the Philippines; that it does not have any employees or personnel in the Philippines; and that it intends to sell its 12,148,811 shares of stock of PEVI to EATDC. In reply, please be informed that Article 13 of the RP Netherlands Tax Treaty provides as follows: "ARTICLE 13 "Gains from the alienation of property "1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the State in which such property is situated. "2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State, or of movable property pertaining to a fixed base available to a resident of one of the States in the other State for the purpose of performing professional services, including such gains from the alienation of such permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. "3. Notwithstanding the provisions of paragraph 2, gained derived by an enterprise of one of the States from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State. "4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall be taxable only in the State of which the alienator is a resident. "5. The provisions of paragraph 4 shall not affect the right of each of the States to levy according to its domestic law a tax on gains from the alienation of any property derived by an individual who is a resident of the other State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property. It is clear from the aforequoted provisions of the RP Netherlands Tax Treaty that capital gains tax from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 13 of the said tax treaty shall be taxable only in the State where the alienator is a resident. Considering that the sale of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3 of Article 13 of the RP Netherlands Tax Treaty, the gains that may be derived by Metaphis which is a resident of Netherlands from the sale of its shares of stock in PEVI, a domestic corporation, to EATDC shall not be subject to Philippine income tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997. LLpr However, the sale by Metaphis of its shares of stock in PEVI is subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 009-96 dated January 23, 1996) This ruling is being issued on 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)