BIR Ruling [DA-183-98]

May 8, 1998 BIR RULING [DA-183-98] Ms. Ma. Adelina S. Gatdula 1518-D Felix Huertas Street Sta. Cruz, Manila M a d a m : This refers to your letter dated August 12, 1997 requesting on behalf of your client, Asia Link B.V. (Asia Link), for an exemption from the payment of the corresponding withholding tax under Section 25(c) of the Tax Code, as amended. It is represented that Asia Link is a corporation duly organized and existing under the laws of Netherlands; and that under a Deed of Sale of Shares of Stock dated March 11, 1997, Asia Link sold to a Philippine corporation, Cypress Harbour Properties, Inc., 164,747,500 shares of stock in Smart Communications, Inc., a corporation also organized and existing under the laws of the Philippines. In reply, please be informed that paragraph 4, Article 13 of the RP-Netherlands Tax Treaty provides, as follows: cdtech "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. "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 a fixed base, may be taxed in the other State. "3. Notwithstanding the provisions 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 provisions 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 said Tax Treaty shall be taxable only in the State where the alienator is a resident. Considering that sale of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3 of Article 13 of the RP-Netherlands Tax Treaty, the gains that may be derived by Asia Link, which is a resident of Netherlands, from the sale of its shares of stock in Cypress Harbour Properties, Inc., a domestic corporation, shall not be subject to Philippine income tax under Section 25 (b) (5) (C) (i) of the Tax Code, as amended, but the same is subject to tax only in the Netherlands. However, the sale by Asia Link of its shares of stock in Cypress Harbour, Properties, Inc. is subject to the documentary stamp tax in accordance with Section 176 of the Tax Code, as amended by Republic Act No. 7660. 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. (BIR Ruling No. 9-96 dated January 23, 1996) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)