BIR Ruling [DA-156-06]

March 27, 2006 BIR RULING [DA-156-06] 28 (B) (5) (c); DA-123-99 Lopez and Company LAC Center 2518 Leiva Street Sta. Ana, Manila Attention: Mr. Restituto T. Lopez Senior Partner Gentlemen : This refers to your letter dated February 2, 2006 requesting for a ruling on the tax consequence of the sale of shares of stocks between Dartmoor Pte., Ltd. (Dartmoor) and Power Best Properties Ltd. (Power Best) It is represented that Technopaq Inc. (Technopaq), (a wholly owned subsidiary of Dartmoor Pte. Ltd), was incorporated on April 11, 1997 under Philippine laws primarily to buy, sell, distribute and market, at wholesale, all kinds of goods, commodities, wares and merchandise and having its registered office at 2/F Astron Building, 102 E. Rodriguez Jr. Ave., Bo. Ugong, Pasig City 1604, Philippines; that its assets consists principally of the following: current assets (cash and cash equivalent, trade and other receivables, prepayments), non current movable assets such as office equipment, furniture and fixtures, leasehold improvements, transportation equipment and due to affiliates; that Dartmoor (Vendor) is a company incorporated in Singapore and having its registered office at 27 Amber Gardens, #08-20 Singapore 439963; that it is the registered and beneficial owner of 199,985 issued and paid-up shares of Technopaq; that Power Best (Purchaser), is a company incorporated in Hong Kong with registered office at Unit C, 6/F, Block 4, Bamboo Mansions, Site 12 Whampao Garden, 3 Tak Hong Street, Hunghom, Kowloon Hong Kong; and that the following is the subject matter of the sale, viz : Original shares issued and subscribed by Dartmoor 52,335 shares Stock dividends declared 83,734 Additional capital infusion 63,916 Total number of shares issued to Dartmoor 199,985 shares ====== In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides as follows: cSaATC "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 base 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 that 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 on 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 Technopaq shares fall under paragraph 3 because based on the latest financial statements of Technopaq, its assets do not consist principally of real property interest located in the Philippines. Accordingly, any gain that may be derived by Dartmoor from the sale of the 199,985 shares of stock in Technopaq is not subject to the capital gains tax imposed under Section 28(B)(5)(e) of the Tax Code of 1997 but is subject to tax only in Singapore where Dartmoor is a resident. (BIR Ruling No. DA-115-99 dated February 25, 1999; BIR Ruling No. 100-94 dated April 29, 1994) However, since the sale of shares will be recorded in the books of Technopaq 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 Technopaq can register the transfer of shares from Dartmoor to Power Best in the Stock and Transfer Book of the Corporation and cancel and issue new stock certificates in the name of Power Best. HcTEaA 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service