BIR Ruling [DA-075-98]

March 11, 1998 BIR RULING [DA-075-98] A.M. Sison, Jr. & Associates Suite 2002-A 6776 Security Bank Centre 6776 Ayala Avenue, 1226 Makati City Attention: Atty . Antonio L . Jardino Gentlemen : This refers to your letter dated November 25, 1997 requesting on behalf of your client, Sara Lee Philippines, Inc ., for confirmation of your opinion that the transfer of 122,610 shares to Sara Lee Kiwi Holdings, USA, is subject to the documentary stamp tax but exempt from the capital gains tax pursuant to the RP-United Kingdom of Great Britain and Northern Ireland Tax Treaty. cdta It is represented that Sara Lee Philippines, Inc. is a corporation duly organized and existing under Philippine laws engaged in business as manufacturer of pharmaceutical, household, health/skin care and other consumer products; that as of March 25, 1991. Fidapi Limited, a corporation organized and existing under the laws of the United Kingdom with registered address at 128 Queen Victoria Street, London, owned 122,610 shares of Nicholas Kiwi Philippines, Inc. (now Sara Lee Philippines, Inc.) with par value of P100 per share or a total par value of P12,261,000.00; that on said date (March 25, 1991), Fidapi Limited was liquidated and all its 122,610 shares in Nicholas Kiwi Philippines, Inc. (now Sara Lee Philippines, Inc.) were distributed to its parent company, Sara Lee Nicholas Kiwi Holdings (now Sara Lee Kiwi Holdings), a corporation incorporated in Delaware, U.S.A.; and that, however, due to organizational changes and other urgent and pressing matters requiring prior attention of the management, the transfer of said 122,610 shares was overlooked, hence, Fidapi Limited still appears to be the owner of the same in the stock and transfer book of Sara Lee Philippines, Inc. In reply, please be informed that Article 12 of the RP-United Kingdom and Northern Ireland Tax Treaty provides, viz: "ARTICLE 12 Gains from the Alienation of Property "(1) Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated. "(2) Capital gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other outstanding State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting 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) of this Article, capital gains derived by a resident of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in that Contracting State. "(4) Capital gains from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident. "(5) . . . It is clear from the foregoing that the capital gains from the alienation of any property other than those mentioned in paragraph 1, 2 and 3 thereof shall be taxable only in the State where the alienator is a resident. Such being the case, since the transfer of 122,610 shares as liquidating dividends to Sara Lee Kiwi Holdings, USA, is not among those included in paragraphs 1, 2 and 3 above-mentioned, we hereby confirm your opinion that gains derived from the transfer of said shares are not subject to the capital gains tax imposed under Section 27 (D) (2) [formerly Section 24 (e) (2) (A)] of the National Internal Revenue Code of 1997 (BIR Ruling No. 195-90 dated October 9, 1990) but subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. aisadc This serves as an authority for the corporate secretary of Sara Lee Philippines, Inc. to register said shares in the name of Sara Lee Philippines, Inc. in the name of Sara Lee Holdings without payment of capital gains tax. This ruling is being issued on the basis of the foregoing facts as represented. However, the same shall be considered null and void if upon investigation the facts are different from those as represented. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)