BIR Ruling No. 060-82

March 5, 1982 BIR RULING NO. 060-82 034 000-00 060-82 Messrs. Sycip, Gorres, Velayo & Company P.O. Box 589 Manila Attention: Mr . F . G . Tagao Tax Division Gentlemen : This refers to your letter dated March 1, 1982 requesting a ruling whether the gain, if any, from the proposed sale of your client's head office of its PDCP Class B common shares outside the Philippines is not subject to the final capital gains tax prescribed under Presidential Decree No. 1739. It is represented that your client, the Bank of Tokyo, Ltd., is a banking corporation duly organized and existing under the laws of Japan with its principal place of business located at Tokyo, Japan; that on July 14, 1977, the Central Bank granted your client an authority to establish and operate an Offshore Banking Unit (OBU) in the Philippines pursuant to Presidential Decree No. 1034; that on September 23, 1977, the Securities and Exchange Commission also issued the corresponding license to operate an OBU in the Philippines; that in 1965, 1969, 1971, 1972 and 1975 or prior to its license to operate an OBU, your client's head office subscribed or acquired 149,407 PDCP Class B common shares; that on various dates, 175,583 PDCP Class B common shares were declared as stock dividends on said shares; that the shares of stock were acquired by and recorded at your client's head office before the OBU was established in the Philippines; that your client's head office is now contemplating to sell the 324,990 PDCP Class B common shares; and that it is envisioned that the sale of the PDCP Class B common shares will be consummated outside the Philippines and the sales proceeds will likewise be paid abroad in foreign currency. cdti In reply thereto, I have the honor to inform you that Article 13 of the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income provides, viz: "ARTICLE 13 "1. Gains derived by a resident of a Contracting State from the alienation of immovable property as defined in paragraph (2) of Article 6 and situated in the other Contracting State may be taxed in that other Contracting State. "2. Gains from the alienation of any property, other than immovable property, forming part of the business property of a permanent establishment which is an enterprise of a Contracting State or of any property, other than immovable property, pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other Contracting State. "3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft operated in international traffic and any property, other than immovable property, pertaining to the operation of such ships or aircraft shall be taxable only in that Contracting State. "4. Gains from the alienation of shares of a company, a 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." The aforesaid stock transaction falls within the purview of paragraph 5 abovequoted. Accordingly, and considering that your client is a resident of Japan, the capital gains derived by it from the sale of its 324,990 PDCP common shares are subject to tax only in Japan. cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner