Whether Gains Derived from Sale of Shares of Capital Stock to a Filipino Investor Are Taxable in the Philippines or in Japan

February 19, 1986 BIR RULING NO. 017-86 34 (g) 000-00 017-86 Gentlemen : This refers to your letter dated September 16, 1985 requesting for an opinion on whether the gains derived by Mitsubishi Corporation, Japan (Mitsubishi) from the sale of its 53,328 shares of capital stock in International Elevator & Equipment, Inc. (IEEI), a Philippine corporation, to a Filipino investor, are taxable in the Philippines or in Japan. cdta In reply, please be informed that pertinent provisions of the RP-Japan Tax Treaty which took effect on January 1, 1983 provide as follows: Article 13 "(4) Gains from the alienation of shares of a company, partnership or a trust the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that Contracting State. (5) Gains from the alienation of any property other than those referred to in paragraphs (1), (2), (3) and (4) shall be taxable only in the Contracting State of which the alienator is a resident." Investigation conducted by this Office disclosed that the property of IEEI does not consist principally (more than 50%) of immovable property situated in the Philippines. Hence, the capital gains that Mitsubishi derived from the sale of its shares of stock in IEEI shall be taxable in Japan where the alienator is a resident pursuant to Art. 13 (5) of the RP-Japan Tax Treaty. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner