BIR Ruling [DA-159-99]

March 16, 1999 BIR RULING [DA-159-99] Joaquin Cunanan & Co. 14th Floor Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Ms . Tomasa H . Lipana Managing Partner, Tax Services Gentlemen : This refers to your letter dated February 24, 1999 requesting in effect, for a ruling that the sale by Pearson Netherlands BV (Pearson) of its shares of stocks in Financial Times Information Philippines (FTIP) to Datastream International Limited (DIL) is not subject to Philippine income tax. LibLex It is represented that Pearson is a corporation duly organized and existing under the laws of Netherlands; that Pearson has no permanent establishment in the Philippines; that FTIP is a corporation organized and existing under the laws of the Philippines; that DIL is a non-resident foreign corporation organized and existing under the laws of the United Kingdom; that on February 19, 1999, Pearson sold its equity in FTIP representing 24,000 shares for valuable consideration to DIL. 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. LLjur "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 fixed base, may be taxed in the other State. "3. Notwithstanding the provision of paragraph 2, gains 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. (Emphasis Supplied) It is clear from the aforequoted provision of the RP-Netherlands Tax Treaty that capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 13 of the 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 tax treaty the gains that may be derived by Pearson, which is a resident of Netherlands, from the sale of its shares of stock in FTIP, a domestic corporation, to DIL shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997, but are subject to income tax only in the Netherlands. However, the sale by Pearson of its shares of stock in FTIP to DIL 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) LLphil 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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)