BIR Ruling [DA-556-98]

December 7, 1998 BIR RULING [DA-556-98] Joaquin Cunanan & Co. 14/F, Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Mr . Tomasa H . Lipana Managing Partner Tax and Corporate Services M a d a m : This refers to your letter dated October 30, 1998 requesting on behalf of your client, Volvo Penta Asia Corporation (VPAC ), for a confirmation of your opinion that the sale/transfer of shares of stock of VPAC is not subject to Philippine income/withholding tax by virtue of RP-Singapore Tax Treaty. cdLL It is represented that VPAC is a corporation organized and existing under the laws of the Philippines; that it is wholly-owned by Volvo Penta Asia (Pte) Ltd. (VPAL), a corporation duly organized and existing under the laws of Singapore; that its assets do not consist principally (not more than 50% in terms of value) of real property interest located in the Philippines; that Volvo East Asia (Pte) Ltd. (VEAL) is a corporation organized and existing under the laws of Singapore; and that in line with the ongoing corporate restructuring, VPAL will sell/transfer all of its equity in VPAC represented by 72,100 shares to VEAL for valuable consideration. In reply, please be informed that paragraphs 3 and 4, Article 13 of the RP-Singapore Tax Treaty provides, as follows: "ARTICLE 13 "GAINS FROM THE ALIENATION OF PROPERTY "xxx xxx xxx "3. Gains from the alienation of shares of a company, the property of which consists principally of immovable property situated in a Contracting State, may be taxed 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 Contracting State of which the alienator is a resident." It is clear from the aforequoted provisions of the RP-Singapore 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 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 13 of the RP-Singapore Tax Treaty, the gains that may be derived by VPAL, which is a resident of Singapore, from the sale of its shares of stock in VPAC, 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 Singapore. However, the sale by VPAL of its shares of stock in VPAC 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) cdt Very truly yours. Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS Deputy Commissioner (Legal and Enforcement Group)