BIR Ruling [DA-158-98]

April 22, 1998 BIR RULING [DA-158-98] Joaquin Cunanan and Co. 6805 Ayala Avenue Makati City Attention: Ms . Tomasa H . Lipana Managing Partner Tax and Corporate Services Gentlemen : This refers to your letter dated September 30, 1997 stating that your client, DART Philippines, Inc. (also known as Tupperware, Philippines) is a corporation organized and existing under the laws of the Philippines and wholly-owned by Dart Industries, Inc. (Dart USA), a corporation duly organized under the laws of the State of Delaware, USA; that Tupperware Asia Pacific Holdings Pte Ltd. (Tupperware Ltd.) is a corporation organized and existing under the laws of Mauritius; and that in line with the ongoing corporate reorganization, Dart USA will assign/transfer its equity in Tupperware, Philippines consisting of 624,933 shares of stock to Tupperware, Ltd., in consideration of which the latter will issue 23,697 shares in favor of Dart USA; and that Dart Philippines' real property interest is less than 50% of its entire assets as shown by its latest (December 31, 1996) audited financial statements and balance sheets (September 22, 1997) as certified by its Treasurer. cdta Based on the foregoing representations and documents submitted, you are now requesting for a ruling confirming your opinion that the income derived from the assignment/transfer of shares of stock of Tupperware Philippines by Dart USA to Tupperware Ltd. is not subject to Philippine income tax pursuant to Article 14(2) of the Philippines-US Tax Treaty in relation to Article 1 of the Reservation Clause of the said treaty. In support of your request, you submitted the following documents: (1) Duly accomplished Application for Tax Treaty Relief (BIR Form TC 001); (2) Certified copy of the Articles of Incorporation of Dart USA; (3) Certificate of Non-registration of Dart USA issued by the Securities and Exchange Commission; (4) Balance Sheets of Dart Philippines as of December 31, 1996 (audited) and as of September 22, 1997 (certified by the treasurer); (5) Detailed schedule of fixed assets of Dart Philippines; (6) Latest Tax Declaration of real properties and/or real property interests of Dart Philippines; and (7) Deed of Assignment/Sale between Dart USA and Tupperware Ltd. evidencing the transfer of shares. In reply, please be informed that pursuant to Article 14 of the RP-US Tax Treaty, stating: "ARTICLE 14 " CAPITAL GAINS "(1) Gains from the alienation of tangible personal (movable) property forming part of the business property of a permanent establishment which a resident of a Contracting State has in the other Contracting State or of tangible personal (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 independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. However, gains derived by a resident of a Contracting State from the alienation of ships, aircraft or containers operated by such resident in international traffic shall be taxable only in that State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the provisions of Article 13. "(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or in Article 7 (Income From Real Property) shall be taxable only in the Contracting State of which the alienator is a resident." the gains which will be realized by Dart USA from the sale of shares of stock in Dart Philippines, a domestic corporation, to Tupperware, Ltd. shall be taxable only in the U.S. However, under the aforequoted provision of paragraph 2 in relation to the Reservation Clause of the RP-US Tax Treaty, the Philippines may tax the gains derived from the disposition of interest in a corporation if its assets consists principally of real property interest located in the Philippines. "Real Property Interest" means interest on properties enumerated in Section 3 of Revenue Regulations No. 4-86 which are not, however, exclusive of others that are similarly situated. As used in the treaties and in the Regulations, it shall be understood to include real properties as understood under Philippine Laws. Moreover, ''Principally'' means more than 50% of the entire assets in terms of value. (Sec. 2(a) and (b), Revenue Regulations No. 4-86) As represented, Dart Philippine's real property interest is less than 50% of its entire assets. Accordingly, the gains if any to be realized by Dart USA from the transfer/assignment of its 624,993 shares of stock in Dart Philippines to Tupperware, Ltd. are not subject to Philippine income tax but subject to the documentary stamp tax imposed under Section 176 of the Tax Code, as amended by Republic Act No. 7660. (BIR Ruling No. 7-96 dated January 18, 1996) LLpr 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)