Exemption from Capital Gain/Income Tax

January 26, 1989 BIR RULING NO. 007-89 24 042-87 007-89 Gentlemen : This refers to your letter dated January 16, 1989 requesting in behalf of your client, Advanced Micro Devices, Inc. (AMD-US) a ruling that the sale by AMD-US of its shareholdings in Advanced Micro Devices Philippines, Inc. (AMDPI), its wholly-owned Philippine subsidiary, to Amkor Electronics, Inc. (Amkor) a non-resident U.S. Corporation, or its affiliated corporate designee, is not subject to capital gain/income tax virtue of Article 14 of the RP-US Tax Treaty (the "Treaty"). It is represented that AMD-US is a non-resident foreign corporation incorporated under the laws of the State of Delaware, U.S.A., and not doing business in the Philippines; that Amkor is a non-resident foreign corporation incorporated under the laws of the State of Pennsylvania, U.S.A; that the sale of the AMDPI shares by AMD-US will take place outside the Philippines; that the real property interest of AMDPI is less than fifty percent (50%) of its entire assets as known in its financial statements for the year ended December 25, 1988. In reply, please be informed that gains which may be realized by AMD-US from the sale of its shares of stock in AMDPI to Amkor shall be taxable only in the United States pursuant to Article 14(2) of the RP-US Tax Treaty. Hence, said gain is not subject to Philippine tax. The Reservation Clause of the RP-US Tax Treaty, pertinent portion of which is quoted hereunder as follows: ARTICLE I " Notwithstanding the provisions of Article 14 of the Convention relating to capital gains, both the Philippines and the United States may tax gains from the disposition of an interest in a corporation if its assets consist principally of real property interest located in that country . Likewise, both countries may tax gains from the disposition of an interest in a partnership, trust or estate to the extent the gain is attributable to a real property interest in one of the countries. The term "real property interest" is to have the meaning it has under the law of the country in which the underlying real property is located." (emphasis supplied) does not apply in this case. It is to be noted that under the Reservation Clause, the Philippines may tax the gains derived from the disposition of interests in a corporation if its assets consists principally of real property interest located in the Philippines. "Principally" means more than 50% of the entire assets in terms of value . (Sec. 2, Revenue Regulations No. 4-86) In the instant case, it is represented that the real property interest of AMDPI is less than fifty percent (50%) of its entire assets as shown in its financial statements for the year ended December 25, 1988. 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 be considered null and void. Very truly yours, (SGD.) JOSE U. ONG Commissioner