Request for Exemption from Payment of Capital Gains Tax on Sale of Shares of Stock pursuant to the RP-Netherlands Tax Treaty

March 6, 1996 BIR RULING NO. 035-96 28 (b) (6) 000-00 035-96 Sycip Salazar Hernandez & Gatmaitan 105 Paseo de Roxas 1200 Makati Attention: Atty . Ernesto S . Taio, Jr . Gentlemen : This refers to your letter dated July 24, 1995 requesting for ruling exempting your client, Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO), from the payment of capital gains tax on the sale of its shares of stock in Mindanao Development Bank (MDB) to NMB Investco., Inc. (NMB) pursuant to Article 13, paragraph 4 of the RP-Netherlands Tax Treaty. It is represented that FMO is a corporation existing under the laws of the Kingdom of the Netherlands and owns 1,923,778 common shares in MDB, a Philippine corporation; that FMO is not engaged in trade or business in the Philippines: that on January 3, 1995, a Share Purchase Agreement was entered into by and between NMB and FMO whereby FMO sold its 1,923,778 common shares in MDB to NMB: that NMB is a corporation organized under the laws of the Philippines: that the assets of the MDB at the time of the transfer of the shares from FMO to NMB do not consist "principally" (i. e., more than 50% of MDB assets) of real property interests located in the Philippines. In reply, please be informed that pursuant to Article 13, paragraph 4 of the RP-Netherlands Tax Treaty, which states: "Article 13 GAINS FROM THE ALIENATION OF PROPERTY (1) Gains from the alienation of immovable property, as defined in the 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 permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be tax 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." xxx xxx xxx" the gains which will be realized by FMO from the sale of its shares of stock in MDB to NMB shall be taxable only in Netherlands. Hence, said gain will not be subject to Philippine income tax. cd However, the said sale by FMO of its shares of stock in MDB to NMB is subject to documentary stamp tax in accordance with Section 176 of the Tax Code; as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue