BIR Ruling [DA-509-99]

September 3, 1999 BIR RULING [DA-509-99] Quisumbing Torres & Evangelista 11/F, Pacific Star Building Makati Ave. cor. Sen. Gil J. Puyat Ave. Makati City Attention: Atty . Edgardo M . de Vera Atty . Shennan A . Sy Gentlemen : This refers to your letter dated October 27, 1998 requesting on behalf of your client, UB Investments, PLC ("UB"), for a confirmation of your opinion that the sale/transfer of shares of stock of UB is not subject to Philippine income/withholding tax by virtue of RP-UK Tax Treaty. It is represented that UB is a non-resident corporation organized and existing under the laws of Scotland, United Kingdom of Great Britain and Northern Ireland; that UB has no permanent establishment in the Philippines; that as of September 30, 1998, UB is a stockholder of record of 39,196 shares of CFC-Keebler, Inc. ("CFC-Keebler") and 17,598 shares of CFC-Keebler Property, Inc. ("CFC-KPI"); that as of the same date, UB is also a beneficial owner of three (3) shares of CFC-Keebler and two (2) shares of CFC-KPI; and that the shares of stock of CFC-Keebler and CFC-KPI have a par value of P100.00 per share; that on October 1, 1998, UB assigned 39,199 shares of CFC-Keebler and 17,600 shares of CFC-KPI to Universal Robina Corporation ("URC") at P18,311,898.00 and P1,988,102.00, respectively. In reply, please be informed that paragraphs 2 and 4, Article 12 of the RP-UK Tax Treaty provides, as follows: "ARTICLE 12 "Gains from the Alienation of Property "(1) Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6 (Income from Immovable Property) may be taxed in the Contracting State in which such property is situated. "(2) Capital gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such a 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) of this Article, capital gains derived by a resident of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in that Contracting State. "(4) Capital gains from the alienation of any property, other than those mentioned in paragraphs 1, 2, and 3 of this Article shall be taxable only in the Contracting State of which the alienator is a resident. "xxx xxx xxx" It is clear from the aforequoted provisions of the RP-UK Tax Treaty that capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 12 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 12 of the RP-UK Tax Treaty, the gains that may be derived by UB, which is a resident of Scotland, United Kingdom of Great Britain and Northern Ireland, from the sale of its shares stock in CFC-Keebler and CFC-KPI, a domestic corporation, shall not be subject to Philippine income tax under Section 25(b)(5)(C)(i) of the Tax Code of 1997 but the same is subject to tax only in the United Kingdom. However, the sale by UB of its shares of stock in CFC-Keebler and CFC-KPI 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. (BIR Ruling No. 9-96 dated January 23, 1996) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)