BIR Ruling [DA-411-00]

November 28, 2000 BIR RULING [DA-411-00] 28 (B) (1); 092-99 Picazo Buyco Tan Fider & Santos Law Offices 8th, 6th and 4th Floors, Singapore Airlines Bldg. 138 H V. dela Costa St., Salcedo Village Makati City Attention: Atty . Mark O . Vergara Gentlemen : This refers to your letter dated January 10, 2000 stating that: "xxx xxx xxx "On behalf of our client, Paribas Asia Equity (Phils.). Inc. (PAEPI), corporation organized and existing under the laws of the Republic of the Philippines, we respectfully request a ruling that the transfer of shares of stock in a domestic corporation as part of the liquidating dividends distributed by a foreign non-resident subsidiary corporation to its foreign non-resident parent company does not give rise to a taxable transaction as contemplated in the provisions of Section 28 (B)(1) of the National Internal Revenue Code of 1997. "Asia Equity (Holdings) Ltd. (Asia Equity), a non-resident Liberian corporation, is a wholly owned subsidiary of Paribas. a corporation based in France. Upon the dissolution of Asia Equity, its assets would be distributed in the form of liquidating dividends to its stockholder Paribas. Pursuant to the principle that taxation may be exercised only within the territorial jurisdiction of the taxing authority, the tax treatment for the distribution of liquidating dividends to Paribas should be in accordance with the Liberian tax laws and not Philippine laws. "It should be noted, however, that Asia Equity owns forty percent (40%) of the outstanding capital stock in PAEPI. In which case, the assets to be distributed to Paribas in the form of liquidating dividends will include the shares in PAEPI." In connection therewith, you are requesting a ruling to the effect that the transfer of the 40% of shares of stock of Asia Equity in PAEPI to Paribas as liquidating dividends as a result of the dissolution of Asia Equity is not subject to Philippine tax. In reply, please be informed that pursuant to Section 28 (B)(1) of the Tax Code of 1997, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-two percent (32%) of the gross income received during each taxable year from all sources within the Philippines, such as interest, dividends, rents, royalties, salaries, premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains, except capital gains realized by a non-resident foreign corporation from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation which is subject to tax under Section 28(B)(5)(c) of the Tax Code of 1997. Accordingly, the transfer of the PAEPI shares by Asia Equity to Paribas as part of its liquidating dividend is not subject to tax since there is no sale, barter or exchange of the 40% Asia Equity shares in PAEPI. The receipt by Paribas of the 40% Asia Equity shares in PAEPI is a consequence of the dissolution of Asia Equity which is a subsidiary of Paribas. However, the transfer of the PAEPI shares from Asia Equity to Paribas is subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997 at the rate of P1.50 for every P200.00 or fractional part thereof of the par value of the shares transferred. Upon presentment of proof of payment or the documentary stamp tax, PAEPI's corporate secretary can register the transfer of the aforestated shares in its stock and transfer book and cancel and issue new stock certificates in the name of the transferee. 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. AaITCS Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group