BIR Ruling [DA-322-98]

July 17, 1998 BIR RULING [DA-322-98] Belo Gozon Elma Parel Asuncion & Lucila 15th Floor, Sagittarius Condominium H. V. de la Costa Street, Salcedo Village Makati City Attention: Atty . Ma . C . Eleanor M . Montenegro Gentlemen : This refers to your letter dated October 10, 1997 requesting on behalf of your client, Thorn International B . V . ("Thorn") , for exemption of the gains it derived from the sale of shares of stock in Octo Arts Emi Music, Inc. casia It is represented that Thorn is a corporation duly organized and existing under and by virtue of the laws of the Netherlands, with principal office at Amsterdam; and that it is your opinion that Thorn is entitled to tax treaty relief on its sale of Octo Arts Emi Music, Inc. shares of stock since it is exempt from capital gains tax pursuant to Article 13 of the RP-Netherlands Tax Treaty. 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. "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 State 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 State 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 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 RP-Netherlands Tax Treaty, the gain that may be derived by Thorn, which is a resident of the Netherlands, from the sale of its shares of stock in Octo Arts Emi Music, Inc., a domestic corporation duly registered with the Securities and Exchange Commission, shall not be subject to Philippine income tax under Section 28(A)(7)(c) of the Tax Code of 1997, but shall be subject to tax only in the Netherlands. However, the sale by Thorn of its shares of stock in Octo Arts Emi Music, Inc. is subject to the documentary stamp tax in accordance with 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)