Gains which may be Realized by BWHC from the Sale of Its Shares of Stock in Boston Bank to Filipino Investors Shall be Taxable Only in the United States

May 14, 1991 BIR RULING NO. 082-91 24 077-86 082-91 Gentlemen : This refers to your letter dated August 8, 1990 stating that your client, Boston World Holding Corporation (BWHC), a non-resident foreign corporation organized under the laws of Massachusetts, U.S.A. owns 40% (386,183) of the common shares and 100% (2,252,736) of the preferred shares of Boston Bank of the Philippines (Boston Bank); and that BWHC is planning to sell a portion of its total holdings to Filipino investors, corporate or individuals. In connection therewith, you now request confirmation of your opinion to the effect that the sale by BWHC of its shares of stock in Boston Bank is not subject to capital gains tax of income tax. cdti In reply thereto, please be informed that gains which may be realized by BWHC from the sale of its shares of stock in Boston Bank to Filipino investors corporate or individuals shall be taxable only in the United States pursuant to Article 14 (2) of the RP-US Tax Treaty. Hence, said gain is not subject to Philippine Tax. The Reservation Clause of the RP-US Tax Treaty, pertinent portion of which is quoted hereunder as follows: "Article I " Notwithstanding the provisions of Article 14 of the Convention relating to capital gains, both the Philippines and the United States may tax gains from the disposition of an interest in a corporation if its assets consist principally of real property interest located in that country . Likewise, both countries may tax gains from the disposition of an interest in a partnership, trust or estate to the extent the gain is attributable to a real property interest in one of the countries. The term "real property interest" is to have the meaning it has under the law of the country in which the underlying real property is located." (Emphasis supplied) does not apply in this case. It is to be noted under the Reservation Clause, the Philippines may tax the gains derived from the disposition of interests in a corporation if its assets consist principally which means more than 50% of real property interest located in the Philippines. In the instant case, Boston Bank Statements of reconciliation as of December 31, 1989 and 1988 show that its real property or fixed assets is less than 50% of its total assets. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner