Request for Tax Treaty Relief with Respect to Gains to Be Realized from Contemplated Sale of Shareholdings

June 29, 1998 BIR RULING NO. 098-98 000-00-098-98 Fernandez, Santos & Lopez 12th Floor, LV Locsin Building 6752 Ayala cor Makati Avenues Makati City Attention: Ms . Eliseo A . Fernandez Gentlemen : This refers to your letter dated October 17, 1997 requesting on behalf of your client, Shinawatra International Public Company Limited (Shinawatra), a tax treaty relief under the RP-Thailand Tax Treaty with respect to the gains that will be realized from the contemplated sale of its shareholdings in Isla Communications Co., Inc. (Islacom). prLL It is represented that Shinawatra, a company organized and existing under the laws of Thailand with registered office address at 414 Shinawatra Tower I Phaholyothin Road, Phayatai, Bangkok 10400 Thailand; that it is the legal and beneficial owner of 30% Class B shares in Islacom, a company organized and existing under the laws of the Philippines; that it intends to sell its Class B shares to Deutsche Telekom AG, a company organized and existing under the laws of the Federal Republic of Germany; that the Class B shares can be owned and held by non-Filipino like the Deutsche Telekom AG which is already a shareholder of Islacom, has expressed its interest in acquiring said shares from Shinawatra; that as of August 31, 1997, the balance sheet of Islacom shows that its real properties located in the Philippines in the amount of P11,859,161,811.00 do not consist of more than 50% of its total assets as these comprise only approximately 16.30% thereof; and that in support of your request, you submitted the following documents: (1) Application Form TC-001 covering the contemplated sale of shares of stock in Islacom to Deutsche; (2) Copy of proposed Shares Purchase Agreement between Shinawatra and Deutsche Telekom; (3) Certification from the Department of Commercial Registration, Ministry of Commerce of Thailand that Shinawatra International Public Companies has been registered under the laws of Thailand governing public limited companies; (4) Secretary's certificate on the subscribed and paid up capital of Islacom as of September 31, 1997; and (5) Copy of an unaudited balance sheet of Islacom as of August 1997. In reply, please be informed that pursuant to Article 14, paragraphs 4 and 7 of the RP-Thailand Tax Treaty, stating: "Article 14 "GAINS FROM THE ALIENATION OF PROPERTY "(1) . . . "(2) . . . "(3) . . . "(4) 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. "(5) . . . "(6) . . . "(7) Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2, 3, 4, and 5 shall be taxable only in the Contracting State of which the alienator is a resident. Nothing in this paragraph shall prevent either Contracting State from taxing the gains or income from the sale or transfer of shares or other securities." xxx xxx xxx" the gains which will be realized by Shinawatra from the contemplated sale of shares of stock in Islacom to Deutsche Telekom AG shall be taxable in Thailand. However, under the aforequoted provision of paragraph 4 supra , which is similar to the Reservation Clause of the RP-US Tax Treaty, the Philippines may tax the gains derived from the disposition of interest in a corporation if its assets consist principally of real property interest located in the Philippines. "Real Property Interest" means interest on properties enumerated in Section 3 of Revenue Regulations No. 4-86 which are not, however, exclusive of others that are originally situated. As used in the treaties and in the Regulations, it shall be understood to include real properties as understood under Philippine law. Moreover, "Principally" means more than 50% of the entire assets in terms of value (Sec. 2(a) and (b), Revenue Regulations No. 4-86). As represented, Islacom's real property interest is less than 50% of its entire assets. The gains, if any to be realized by Shinawatra from the sale of its Class "B" shares of stock in Deutsche Telekom AG are not subject to Philippine income tax but subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue