Gain Arising from the Sale of the Membership Seat of HLG Capital Berhad in the Philippine Stock Exchange Not Subject to Philippine Income Tax pursuant to the RP-Malaysia Tax Treaty

August 29, 1997 BIR RULING NO. 099-97 21 (a) 000-00 099-97 HLG Capital Philippines, Inc. 15/F BA Lepanto Bldg. 8747 Paseo de Roxas, Makati City Attention: Mr . John Thomas G . Deveras Vice-President Gentlemen : This refers to your letter dated April 2, 1997 requesting for confirmation of your opinion that the gain arising from the sale of the membership seat of HLG Capital Berhad (HLG) in the Philippine Stock Exchange (PSE) is not subject to Philippine income tax pursuant to paragraph 4 of Article 13 of the RP-Malaysia Tax Treaty. LLjur It is represented that HLG is a corporation organized and existing under the laws of Malaysia with business address at the 20th Floor Wisma HLA, Jalan Raja Chulan, 50200, Kuala Lumpur, Malaysia; that it does not have a registered branch or a permanent establishment in the Philippines; that HLG is the absolute and registered owner of a membership seat in the PSE covered by Certificate of Membership No. M-008; and that it intends to sell such membership seat to Unicapital Securities, Icnc., a corporation organized and existing under the laws of the Philippines. In reply, please be informed that the BIR Rulings Nos. 349-87 dated November 5, 1987 and 398-87 dated December 16, 1987, this Office has ruled that a seat at the Manila Stock Exchange is a capital asset within the purview of then Section 34(a)(1) of the Tax Code [now Section 33(a)(1)] Thus, a seat being sold is a privilege akin to a franchise to transact business as a stockbroker at the Stock Exchange. Such being the case, the net capital gain from the sale of such seat is subject to the income tax rates prescribed under Section 21(a) of the Tax Code, as amended. However, paragraph 4, Article 13 of the Philippine-Malaysia Tax Treaty provides to wit: "Article 13 Gains from the Alienation of Property "1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, 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 a permanent establishment (alone together with the whole enterprise) or of such a fixed base may be taxed in the other State. However, gains from the alienation of ships or aircraft operated by an enterprise of a Contracting State in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in the State of which the enterprise is a resident. "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 or assets, other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in the Contracting State of which the alienator is a resident ." Thus the gains to be realized by HLG Capital Berhad from its alienation or transfer of its membership seat in the Philippine Stock Exchange shall be taxable only in Malaysia. 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 will be considered null and void. prLL Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue