BIR Ruling [DA-115-99]

February 25, 1999 BIR RULING [DA-115-99] Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza 8741 Paseo de Roxas Makati City Attention: Atty. Priscilla B. Valer Gentlemen : This refers to your letter dated January 6, 1999 requesting for a ruling that any gain derived from the sale by Deutsche Asia Pacific Holdings, Pte. Ltd. ("DAPH") of its shares of stock in Deutsche Morgan Grenfell Securities Philippines, Inc. ("DMGSP") is exempt from the capital gains tax imposed under Section 28 (B) (5) (c) of the Tax Code of 1997 pursuant to Article 13 of the RP-Singapore Tax Treaty. It is represented that DAPH is a non-resident foreign corporation organized and existing under the laws of Singapore with address at 8 Shenton Way Temasek Tower Singapore; that DAPH does not engage in trade or business in the Philippines; that it owns 100% of the issued and outstanding capital stock of DMGSP, consisting of 460,657 shares with a par value of P100.00 per share; that DMGSP is a domestic corporation doing business as a stock broker and, as shown in its latest Audited Financial Statement, not more than 51% of its assets consist principally of real property interest located in the Philippines; that pursuant to a Stock Purchase Agreement, DAPH will, upon the happening of certain conditions precedent, sell, assign and deliver to Pacific Main Properties Holdings, Inc. ("PMPH") 276,395 shares of stocks in DMGSP representing 60% of the latter's outstanding capital stock; and that PMPH is a corporation organized and existing under the laws of the Philippines. In connection therewith, you now request for a ruling confirming your opinion that DaTEIc "1. The said sale by DAPH of the DMGSP shares to PMPH is exempt from the 5%/10% capital gains imposed under Section 28(B)(5)(c) of the NIRC pursuant to the Article 13 of the RP-Singapore Tax Treaty; "2. However, the sale of the DMGSP shares is subject to documentary stamp tax (DST) equivalent to P1.50 for every P200 or a fraction thereof of the par value of the shares; and "3. Upon presentment of a proof of payment of the DST, the Corporate Secretary of DMGSP shall be authorized to register the transfer of the shares from DAPH to PMPH in the Stock and Transfer Book of DMGSP and to cancel and issue new stock certificates in the name of PMPH." In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides as follows: "Article 13 "GAINS FROM THE ALIENATION OF PROPERTY "1. Gains from the alienation of immovable property may be taxed in the Contracting 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 a Contracting State has in the other Contracting State or of movable property pertaining to a fixed based available to a resident of a 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 such a fixed base may be taxed in the other State. However, gains derived by an enterprise 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 or aircraft, shall be taxable only in the State. "3. Gains from the alienation of shares of a company, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in a Contracting State, may be taxed 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 Contracting State of which the alienator is a resident." The sale of shares of stock in a domestic corporation does not fall under the aforequoted paragraphs 1 and 2. Neither does the sale of the DMGSP shares fall under paragraph 3 because based on the latest financial statements of DMGSP, its assets do not consist principally of real property interest located in the Philippines. Accordingly, any gain that may be derived by DAPH from the sale of the 276,395 shares of stock in DMGSP is not subject to the capital gains tax imposed under Section 28 (B) (5) (c) of the Tax Code of 1997 but is subject to tax only in Singapore where DAPH is a resident. (BIR Ruling No. 067-90 dated April 30, 1990; BIR Ruling No. 100-94 dated April 28, 1994) However, since the sale of the shares will be recorded in the books of DMGSP in the Philippines, the transfer will be subject to the DST imposed on subsequent transfers of shares of stock under Section 176 of the NIRC at the rate of P1.50 for every P200 or a fraction thereof of the par value of the shares (Section 20, DST Regulations). Upon presentment of a proof of payment of the DST, the Corporate Secretary of DMGSP can register the transfer of the shares from DAPH to PMPH in the Stock and Transfer Book of the corporation and cancel and issue new stock certificates in the name of PMPH. SaHIEA 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)