BIR Ruling [DA-539-98]

December 1, 1998 BIR RULING [DA-539-98] SGV & Co. 6760 Ayala Avenue Makati City Attention: Mr . Joel L . Tan Torres Partner, Tax Division Gentlemen : This refers to your letter dated November 10, 1998, requesting in effect for a ruling that the sale by Holderfin, B.V. (HBV) of its shares of stock in Alcem Holdings, Inc. (AHI), a domestic corporation, is not subject to Philippine income tax. It is represented that HBV is a non-resident foreign corporation organized and existing under the laws of the Netherlands; that HBV owns 1,340,207 common shares of stock of AHI, a domestic corporation; and that presently, HBV will sell all of said shares to Alsons Consolidated Resources, Inc. (ACR), a corporation organized and existing under Philippine laws. 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 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 a permanent establishment (alone or together with the whole enterprise) or of such 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." ( 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 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 tax treaty, the gains that may be derived by HBV, which is a resident of Netherlands, from the sale of its shares of stock in AHI, a domestic corporation, shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997, but are subject to income tax only in the Netherlands. However, the sale by HBV of its shares of stocks in AHI is subject to documentary stamp tax in accordance with Section 176 of the Tax Code of 1997. (BIR Ruling No. 009-96 dated January 23, 1996) cdta 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)