Exemption of the Sale of Shares of Stock from the Capital Gains Tax

April 30, 1990 BIR RULING NO. 067-90 21 000-00 067-90 Gentlemen : This refers to your letter dated February 26, 1990, requesting a ruling as to whether the gain derived by your client, Mr. James S.H. Chia from the sale of his shares of stock in a domestic corporation is exempt from tax. cdtech It is represented that Mr. James S.H. Chia, a resident of Singapore is an incorporate of Pico Art Exhibition Contractors (Phils.), Inc. a corporation organized and existing under Philippine laws; that at the time of its incorporation he subscribed 300 shares with a par value of P100; that on February 9, 1990 he sold the 75 fully paid shares of his subscription to Pico Exhibits PTE. Ltd., as a consequence of which he realized gain therefrom; and that the property of Pico Art Exhibition Contractors (Phils.) Inc. does not consist principally of immovable property situated in the Philippines. In reply thereto, I have the honor to inform you that Article 13 of the RP-Singapore Tax Treaty provides, viz: "Article 13 " GAINS FROM THE ALIENATION OF PROPERTY "1. Gains from the alienation of immovable property may be taxed in the Contracting 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 a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting 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 taxed in the other State. However, gains derived by an enterprise of a Contracting State 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. "3. Gains from the alienation of shares of a company, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in a Contracting State, may be taxed 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 Contracting State of which the alienator is a resident." The foregoing transaction involving alienation of shares of stock in a domestic corporation does not fall under paragraphs 1 and 2 abovequoted. Neither does it fall under paragraph 3 because it has been ascertained from the latest financial statement of the Pico Art Exhibition Contractors (Phils.) Inc., that its property does not consist principally, which means less than 50% of real property located in the Philippines. Such being the case, the foregoing transaction falls under paragraph 4. Accordingly, the gain derived by Mr. James S.H. Chia who is a resident of Singapore from the sale of his 75 shares of stock in Pico Art Exhibition Contractors (Phils.), Inc. is not subject to the capital gains tax under Section 22(b) in relation to Sections 21(d)(1) and 36(e) of the Tax Code, as amended but is subject to tax only in Singapore. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner