Exemption of the Transfer of Porcelana Mariwasa, Inc. Shares from Philippine Tax

May 10, 1990 BIR RULING NO. 071-90 24 000-00 071-90 Gentlemen : This refers to your letter dated November 25, 1988 requesting confirmation of your opinion to the effect that the transfer of ownership by Noritake Ceramics Co. Ltd. (NCCL) of its shares of stock in Porcelana Mariwasa, Inc. (PMI) to Noritake Co. Ltd. (NCL) is not subject to capital gains tax. cdtech It is represented that PMI is a corporation established and organized under Philippine Laws; that to date, its total outstanding shares of stock consist of 55,756,562 shares; that out of these shares, 2,706,000 shares are held by NCCL while the remaining shares are held by various individuals and corporate stockholders; that NCCL and NCL are both foreign corporations established and organized under Japanese Laws, and that the transferee corporation is a wholly-owned subsidiary of the transfer corporation. 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 States 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 an enterprise of a Contracting State has in the other 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 paragraph (1), (2), (3) and (4) shall be taxable only in the Contracting State of which the alienator is a resident. The above transaction involving transfer of shares of stock of PMI, a domestic corporation does not fall under paragraph 1, 2, and 3 abovequoted. Neither does it fall under paragraph 4 because it has been ascertained from the current financial statement of PMI that its assets do not consist principally which means less than 50% of real property located in the Philippines. Such being the case, the transaction falls within the purview of paragraph 5. Accordingly, and considering that Noritake Ceramics Co., Ltd. the alienator, is a resident of Japan, the capital gain if any derived by it from the transfer of its Porcelana Mariwasa, Inc. shares to its subsidiary Noritake Company Ltd. is subject to tax only in Japan. Said gains, therefore, are not taxable in the Philippines. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner