Taxability of the Transfer by Pfizer (Panama) of Its Shares of Stock in Pfizer (Philippines) to Pfizer (U.S.A.)

May 4, 1994 BIR RULING NO. 102-94 25, 36 000-00 102-94 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles Fourth Floor, Kings Court 2129 Pasong Tamo St., Makati Metro Manila Attention: Atty . Carlos G . Baniqued Gentlemen : This refers to your letter dated May 7, 1990 requesting for confirmation of your opinion to the effect that the contemplated transfer by Pfizer Corporation (Panama), a non-resident Panamanian corporation not engaged in trade or business in the Philippines of its shares of stock in Pfizer, Inc. (Philippines) to Pfizer International, Inc. (U.S.A.), a non-resident U.S. corporation not engaged in trade or business in the Philippines by way of a property dividend declaration is not subject to Philippine tax. cdta Verification conducted in this case disclosed that Pfizer (Phils.), a corporation duly organized and existing under the laws of the Philippines is a wholly-owned subsidiary of Pfizer (Panama); that Pfizer (Panama) is a wholly-owned subsidiary of Pfizer (U.S.A.); that Pfizer (Panama) intends to distribute in favor of Pfizer (U.S.A.) by way of property dividend, the shares of stock it owns in Pfizer (Phils.); that Pfizer (Panama) is a holding company with investment in other Pfizer subsidiaries located in various countries; and that not more than fifty percent (50%) of its gross income for the three-year period ending with the close of its taxable year preceding the intended dividend declaration was derived from sources within the Philippines. In reply thereto, please be informed that under Section 25(b)(1) of the Tax Code, as amended, a foreign corporation not engaged in trade or business in the Philippines is subject to tax only on income derived from sources within the Philippines. Such being the case, since Pfizer (Panama) and Pfizer (U.S.A.) are both non-resident foreign corporations not engaged in trade or business in the Philippines and considering that both non-resident foreign transferor and transferee corporations will not derive any income from sources within the Philippines, the contemplated declaration of property dividend by Pfizer (Panama) involving Pfizer (Phils.) shares in favor of Pfizer (U.S.A.) is not subject to any Philippine tax. Moreover, under Section 36(a)(2) of the Tax Code, as amended, dividends shall be considered as income from sources within the Philippines, if they are received, (A) from a domestic corporation; and (B) from a foreign corporation unless less than fifty per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of this Section, but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. Accordingly, since Pfizer (Panama) is not a domestic corporation, the provision of Section 36(a)(2)(A) of the same Code, as amended will not apply. Likewise, the provision of Section 36(a)(2)(B) of the Tax Code, as amended will not apply since as verified by Revenue Officer Ms. Elizabeth R. Bisquera of the International Tax Affairs Division, BIR, not more than fifty percent (50%) of the gross income of Pfizer (Panama) for the three-year period ending with the close of its taxable year preceding the dividend declaration was derived from sources within the Philippines. As such, the property dividend distribution will not be considered as derived from sources within the Philippines, and is therefore, not subject to any Philippine Income Tax. It is understood, however, that the transfer by Pfizer Corporation (Panama) of its shares of stock in Pfizer, Inc. (Philippines) to Pfizer International, Inc. (U.S.A.) will be subject to documentary stamp tax under Section 176 of the Tax Code, as amended. cdti Very truly yours, VICTOR A. DEOFERIO, JR. Commissioner of Internal Revenue (Officer-In-Charge)