Lobrido Lapore Ponde Villa Distrito Causapin

October 31, 2008 BIR RULING [DA-(I-034) 376-08] DA290-05 Lobrido Lapore Ponde Villa Distrito Causapin Suite No. 2, 3rd Floor, Prudential Life Building Luzuriage San Juan Street Bacolod City Attention: Atty. Arnel L. Lapore Gentlemen : This refers to your letter dated June 17, 2008 stating that your client, Mr. Johannes Cornelis Koelman (Mr. Koelman), is a Dutch National and a resident of Talisay City, Negros Occidental; that he entered in the Philippines in August 1998 and since then lived in the Philippines as a resident alien having been married to a Filipina, Portia Parcon Koelman of Isabela, Negros Occidental; that Mr. Koelman obtained his Alien Certificate of Registration with No. E157995 renewed on October 19, 2007 and has been in possession thereof since the time of its acquisition, and is unblemished of any derogatory records; that Mr. Koelman while in Netherlands has invested in the corporation as a stockholder; and that the corporation intends to undergo a liquidation process and his investment shall be accordingly returned to him in the form of liquidating dividends. Based on the foregoing representations, you now request for an opinion as to whether or not the liquidating dividends to be received by Mr. Koelman, as a resident alien, from a corporation in Netherlands is subject to income tax in the Philippines; and whether the sale of the said shares is likewise taxable in the Philippines. In reply thereto, please be informed that this Office had already occasioned to rule on the matter, when it said in BIR Ruling No. DA290-05 dated June 27, 2005, as follows: ". . . Section 22(F) of the Tax Code of 1997 defines the term 'resident alien' as an individual whose residence is within the Philippines and who is not a citizen thereof. Conversely, Section 5 of Regulations No. 2, otherwise known as the Income Tax Regulations defines a 'non-resident alien individual' as an individual (a) Whose residence is not within the Philippines; and (b) Who is not a citizen of the Philippines. CSDcTA An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the Philippines and has no definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the Philippines, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned." A careful scrutiny of the above-cited laws disclosed that Mr. Koike is considered a resident alien for purposes of his income tax liability in the Philippines as he has passed the requisites for a resident alien. As represented, he has been involved with the Company since 1996 when it was incorporated. In fact, when Blaze started its operations in February 1998, he has served as its Vice President and subsequently on October 28, 1998, obtained a special non-immigrant visa. Moreover, being the President of the Company he is required to be in the Philippines most of the time since he manages the day-to-day operations. . . . this Office holds that he is deemed a resident alien for Philippine income tax purposes." Corollarily, Section 24 (A) (1) (c) of the Tax Code of 1997 provides that on the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines shall be taxed at the rates of 5% to 32%. TaSEHC Accordingly, having established Mr. Koelman's status as a resident alien, his income therefore in the form of liquidating dividends derived from his investment in a foreign company is considered as income from sources derived outside the Philippines, hence, not subject to income tax and consequently to withholding tax on compensation. On the other hand, the sale of his shares in a Netherlands corporation is subject to Article 13 (4) of the RP-Netherlands Tax Treaty which provides that 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. Inasmuch as Mr. Koelman is deemed a resident alien for Philippine income tax purposes, the net gain from the sale of his shares in a Netherlands corporation is subject to the Philippine income tax under Section 24 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service