BIR Ruling [DA-369-98]

August 17, 1998 BIR RULING [DA-369-98] Bautista Picazo Buyco Tan & Fider 8th Floor, Singapore Airlines Bldg. 138 H. V. dela Costa St., Salcedo Village Makati City Attention: Atty . Noel T . Canlas Gentlemen : This refers to your letter dated October 3, 1996 requesting for a ruling exempting your client, First Pacific Land B.V. (FPLBV), from the payment of capital gains tax on the sale of its shares of stock in First Pacific Land (Philippines), Inc. (FPLPI) in favor of Sukhumvit Holdings B.V. (SHBV) imposed under then Section 25(b)(5)(C) of the Tax Code, as amended [now Section 28(B)(5)(c) of the Tax Code of 1997] and pursuant to Article 13 of the RP-Netherlands Tax Treaty. aisadc It is represented that FPLPI is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that it has an authorized capital stock of P65,000,000.00 divided into 650,000 shares with a par value of P100.00 per share; that your client, FPLBV and SHBV are both foreign corporations duly organized and existing under and by virtue of the laws of Netherlands; that SHBV is a wholly-owned subsidiary of FPLBV; that both FPLBV and SHBV are not authorized to engage in business in the Philippines; that of the total 650,000 outstanding shares of FPLPI, 200,000 shares are registered in the name of FPLBV and its nominees while the remaining shares are owned and held by various stockholders; and that FPLBV is contemplating of selling its shareholdings of 200,000 shares in FPLPI in favor of SHBV. In reply, please be informed that pursuant to Article 13 of the RP-Netherlands Tax Treaty stating: "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. Such being the case, the capital gains realized from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of the RP-Netherlands Tax Treaty shall be taxable only in the State where the transferor is a resident. Accordingly, the gains which will be realized by FPLBV from the sale of its 200,000 shares in FPLPI to SHBV shall be taxable only in Netherlands. However, the sale of the aforementioned shares of stock shall be subject to the documentary stamp tax imposed under then Section 176 of the Tax Code, as amended [also Sec. 176 of the Tax Code of 1997]. Finally, upon presentment of a proof that the documentary stamp tax on the sale of shares of stock has been paid, the Corporate Secretary of FPLPI may cause the registration of the sale of the shares of stock from FPLBV to SHBV in the Stock and Transfer Book of the corporation and cancel and issue new Stock Certificates in the name of Sukhumvit Holdings B.V. (BIR Ruling No. 009-96 dated January 23, 1996) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclose; 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)