BIR Ruling [DA-507-98]

November 19, 1998 BIR RULING [DA-507-98] Bengzon Narciso Cudala Jimenez Gonzales & Liwanag The Bengzon Firm SOL Building 112 Amorsolo Street, Legaspi Village 1229 Makati City Attention: Atty . Juris M . Tomboc Gentlemen : This refers to your letter dated July 16, 1998, requesting in effect for a ruling that the sale by Interbiologie (Nederland) N.V. of its shares of stock in Armedic Philippines, Inc., a domestic corporation, is not subject to Philippine income tax. cdti It is represented that Interbiologie (Nederland) N.V., is a limited liability company with its corporate seat in Deventer, and its address at 7418 AT Deventer, Hanzaweg 70 The Netherlands; that Interbiologie (Nederland) B.V. is a stockholder of record for 89,934 shares representing 30% of the outstanding capital stock of Armedic Philippines, Inc.; that the said shares of stock representing the entire interest of Interbiologie (Nederland) N.V. was bought on June 18, 1998 by Servier International B.V., a private company with limited liability, with its corporate seat in Amsterdam, The Netherlands, and its address at 2716 LH Zoetermeer, Tijberg 9. 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 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 in 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 State at any time during the six years immediately preceding the alienation of 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 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 Interbiologie (Nederland) B.V., which is a resident of Netherlands, from the sale of its shares of stock in Armedic Philippines, Inc., a domestic corporation shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997, but is subject to tax only in Netherlands, (BIR Ruling No. 9-96 dated January 23, 1996) However, the sale by Interbiologie (Nederland) B.V. of its shares of stock in Armedic Philippines, Inc. is subject to the documentary stamp tax in accordance with Section 176 of the Tax Code of 1997. 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 and Enforcement Group)